Agribusiness in the Arizona-Sonora Region: Analysis and ......Consorcio Universitario de Sonora:...

Agribusiness in the Arizona-Sonora Region: Analysis and Recommendations for DevelopmentA part of the overall series from 1997

Strategic Economic Development Vision for the Arizona-Sonora Region

STRATEGIC ECONOMIC DEVELOPMENT VISION FOR THE

ARIZONA-SONORA REGION

***** ft**** ***** --**** ~ <***** ******* ******* • • • • .l •

AGRIBUSINESS

Strategic Economic Development Vision for the Arizona-Sonora Region

Governor Armando Lopez Nogales State of Sonora

Governor Jane Dee Hull State of Arizona

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Lie. Alfonso Molina Ruibal, President Luis Carlos Soto, Executive Director

Comisi6n Sonora-Arizona

Margie Emmermann Governor's Executive Assistant for Mexico

Jose Cardenas, President Ruben E. Alvaraz, Executive Director

Arizona-Mexico Commission

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Luis A. Galaz Study Coordinator

Secretarf a de Planeaci6n del Desarrollo y Gasto Publico

Gail Lewis Howard Study Coordinator

Arizona State University

Bruce A. Wright Study Coordinator

The University of Arizona

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The Arizona University Consortium: The American Graduate School of International Management

Arizona State University Northern Arizona University


Consorcio Universitario de Sonora: Centro de Jnvestigaci6n en Alimentaci6n y Desarrollo, A. C.

Centro de Jnvestigaci6n y Desarrollo de Jos Recursos Natura/es de Sonora El Colegio de la Frontera Norte

El Colegio de Sonora Univesidad de Sonora

lnstituto Tecnol6gico de Estudios Superiores de Monterrey

Arizona-Sonora Agribusiness Cluster: Analysis and Recommendations for Development

Study Team Leaders

Russell Tronstad Satheesh Aradhyula

Department of Agricultural and Resource Economics The University of Arizona

Pablo Wong Gonzalez Regional Development Division

Centro de Investigaci6n en Alimentaci6n y Desarrollo, A.C.

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Study Team Members

Kennedy Agnew Department of Agricultural and Resource Economics


Vidal Salazar Solano Sergio Sandoval Godoy

Regional Development Division Centro de lnvestigaci6n en Alimentaci6n y Desarrollo, A.C.

Araceli Almaraz Alvarado Rodolfo Rubio Salas

El Colegio de la Frontera Norte

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Technical Supporting Staff

Carlos Borbon, Beatriz Camarena, Norma Montoya, Luis Nunez, Roberto Ramirez, Jesus Robles,

David Romero, Carlos Servin and Karin Traebecke Regional Development Division

Centro de Investigaci6n en Alimentaci6n y Desarrollo, A.C.

November, 1997

This study team wishes to acknowledge the Arizona-Mexico Commission, the Comisi6n Sonora-Arizona and the Arizona Department of Agriculture for their assistance and support throughout this project.

Arizona-Sonora Agribusiness Study: Table of Contents

Agribusiness in Arizona-Sonora Region: Analysis and Recommendations for Development

Table of Contents

Page

Table of Contents .............................................................................................................. i

List of Figures ................................................................................................................... v

List of Tables .................................................................................................................. vii

Executive Summary ....................................................................................................... , . ix

Chapter 1: Introduction ... , ..... , ........ , .......................... , .... , .. , ..... , .. , .................. , ...... , ....... 1-1

1.1 Objectives of the Study ................................................................................. 1-2 1.2 Methodology ................................................................................................. 1-2

Information Sources and Data Collection ............................................ 1-2 Analytical Framework ......................................................................... 1-3

1.3 Organization of the Report ............................................................................ 1-7 1.4 References ......... , ........... ,,, ... , ....................................................................... , 1-7

Chapter 2: Megatrends ............ , ........ , .............. , ............................................................ 2-1

2.1 The Globalization Process ............................................................................. 2-1 2.2 Globalization and Agribusiness ...................................................................... 2-1 2.3 Technological Innovation, Transport and Communications ............................. 2-2 2.4 Shifts in Consumption and Dietary Patterns ................................................... 2-3 2.5 Protectionism, GATT, and NAFI'A .................................................................... 2-3 2.6 References .................................................................................................... 2-5

Chapter 3: Overview of the Agribusiness cluster in Arizona and Sonora .................. 3-1 3.1 Agribusiness in the National Economies ......................................................... 3-1

NAFI'A and Agricultural Trade ............................................................. 3-2 3.2 Agribusiness in Arizona-Sonora Region .......................................................... 3-8 3.3 References .................................................................................................. 3-13

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Arizona-Sonora Agribusiness Study: Table of Contents --------------Chapter 4: Crop Sector ................................................................................................ 4-1

4.1 Overview of Arizona and Sonora's Crop Industries ......................................... 4-1 Importance of Sector for Arizona and Sonora ..................................... 4-1 National Perspective .......................................................................... 4-1 Government Programs and Regulations .............................................. 4-3

4.2 Structure of Production and Regional Competitiveness ................................... 4-4 Land Tenure and Land Ownership in Sonora ....................................... 4-4 Regional Crop Patterns ....................................................................... 4-4 Regional Competitiveness .................................................................. 4-8

4.3 Trade Patterns and NAFTA ........................................................................... 4-12 Foreign Trade Patterns ..................................................................... 4-12 Regional Trade ................................................................................. 4-15 NAFTA Regulations and Legal Issues ................................................ 4-16

4.4 Cluster Analysis ............................................................................................... 4-17 4.5 References ...................................................................................................... 4-21

Chapter S: Livestock .................................................................................................... 5-1 5.1 Overview of Arizona and Sonora's Livestock Industries ................................. 5-1

Importance of Sector for Arizona and Sonora ..................................... 5-3 National Perspective .......................................................................... 5-3 Government Programs and Regulations .............................................. 5-4

5.2 Production and Market Structure .................................................................... 5-4 Structure of Production ...................................................................... 5-5 Ranching Industry .............................................................................. 5-5 Feedlot Industry ................................................................................. 5-6 Dairy Industry .................................................................................... 5-8 Pork Industry ..................................................................................... 5-9 Other Industries ................................................................................. 5-9 Market Environment ........................................................................... 5-9

5.3 Trade Patterns and NAFTA ........................................................................... 5-13

5.4 5.5

Chapter 6: 6.1

6.2

6.3

National Trade ................................................................................. 5-13 Regional Trade ................................................................................. 5-15 NAFTA Regulations and Legal Issues ................................................. 5-16

Cluster Analysis .......................................................................................... 5-19 References .................................................................................................. 5-23

Food Processing ......................................................................................... 6-1 Overview of Food Processing Sector ............................................................. 6-1

Regional Importance of Sector ...................................................... 6-1 National Perspective ..................................................................... 6-2 Government Programs and Regulations ......................................... 6-3

Production and Market Structure .................................................................... 6-5 Structure of Production ................................................................ 6-5 Market Environment ..................................................................... 6-7

Trade Patterns and NAFTA ........................................................................... 6-1 0 National Trade ........................................................................... 6-10 Regional Trade ........................................................................... 6-11 NAFTA Regulations and Legal Issues ........................................... 6-13


6.4 Cluster Analysis .......................................................................................... 6-14 6.5 References ................................................................................................. 6-17

Chapter 7: Finance and Marketing ............................................................................... 7 -1 7 .1 Finance and Credit Situation ......................................................................... 7-1 7. 2 Sources of Credit .......................................................................................... 7-4 7 .3 Trade and Marketing Issues ........................................................................... 7-7 7.4 Cluster Analysis ............................................................................................ 7-9 7 .5 References ................................................................................................. 7-12

Chapter S: Overall Survey Results ............................................................................... 8-1 8.1 Status ........................................................................................................... 8-1 8.2 Perceptions and Implications ......................................................................... 8-4

Chapter 9: Key Findings and Recommendations ........................................................ 9-1 9 .1 Key Findings ................................................................................................. 9-1 9.2 Recommendations ........................................................................................ 9-4

Appendix A:. Arizona Questionnaire ............................................................................ A-1

Appendix B: Sonora Questionnaire .............................................................................. B-1

Appendix C: Arizona and Sonora: Questionnaire Responses ................................... C-1

Appendix D: Technical Advisory Committee for Arizona ........................................... D-1

Appendix E: Technical Advisory Committee for Sonora ............................................. E-1


Arizona-Sonora Agribusiness Stud-y: Table of Contents

Figure

1.2a

1.2b

2.5a

3.la

3.lb

3.2a

3.2b

3.2c

4.2a

4.2b

4.2c

4.2d

4.2e

4.3a

4.3b

List of Figures

Key Components of a Cluster ........................................................................ 1-4

The Complete System of the Determinant of National (Regional) Advantage .... 1-6

Value of US Agricultural Exports, 1986-2006 .................................................. 2-5

US Exports to Mexico, 1991 and 1995 ........................................................... 3-7

US Imports from Mexico, 1991 and 1995 ...................................................... 3-7

Real Cash Receipts for Crop and Livestock in Sonora, 1980-1995 ................ 3-10

Real Cash Receipts for Crop and Livestock in Arizona, 1980-1995 ............... 3-11

Regional Distribution of Crop and Livestock Cash Receipts, 1995 ................. 3-12

Sonora's Crop Acreage, 1980-95 ................................................................... 4-4

Arizona's Crop Acreage, 1980-95 .................................................................. 4-5

Irrigated Land in Sonora and Arizona ............................................................. 4-6

Regional Crop Acreage for Arizona and Sonora, 1995 .................................... 4-7

Weekly LA Wholesale Prices, Production Windows, and Cost of Production

Estimates for Selected Fruits and Vegetables by Location .................... 4-9

US Asparagus Production, Imports and Exports, 1989-1996 ......................... 4- 14

Survey Results: Arizona Respondents that have Purchased Production

Inputs or Received Technical Assistance from Mexico in the last 3

Years or 4 to 10 Years ...................................................................... 4-16

5.1 a Real Cash Receipts for Arizona Livestock, 1980-1995 .................................... 5-2

5. 1 b Real Cash Receipts for Sonora Livestock, 1980-1995 ..................................... 5-3

5.2a January Cattle Inventory Numbers for Arizona, 1920-95 ................................. 5-5

5.2b Survey Results: Percent of Feeder Cattle in Arizona Feedlots that

have Originated from Sonora 5 years ago and last 2 years .................. 5-7

5.2c Survey Results: Performance of Sonoran Feeders in Arizona Feedlots ............ 5-8

5.2d US Per-capita Meat Consumption, 1980-95 .................................................. 5-10

5.2e Selected US Retail Price Ratios, 1960-95 ...................................................... 5-11

5.2f US Cattle Numbers and Arizona Calf Prices .................................................. 5-11

5.2g Relationship between Corn and Arizona Feeder Prices ................................. 5-12

5.3a US Livestock and Beef Product Trade with Mexico, 1980-95 ......................... 5- 14

5.3b US Beef Carcass Exports, 1970-95 ............................................................... 5-15

5.3c Survey Results: Percent of Arizona Livestock Individuals that have

Sold Live Cattle to Sonora and the Rest of Mexico ............................ 5- 16


5.3d Survey Results: Arizona Livestock Individuals that ttave Shipped Live

Cattle for Grazing to Sonora with the Intent to Return Them .............. 5-16

5.3e Survey Results: Primary concerns of Arizona livestock individuals

in leasing pasture to Sonorans or sending live cattle to Sonora

for grazing ....................................................................................... 5-1 7

5.3f Survey Results: Differences in the Use of Growth Regulators/

tlormones and Vaccinations in Mexico ............................................. 5-18

6. 1 a Survey Results: Arizona Participants' Response to Food Products

Processed in Mexico Compared to the US ........................................... 6-4

6.1 b Survey Results: Difficulty of Labeling Requirements for Arizona

(Sonora) Food Processors Shipping to Mexico (US) Compared

to Other Foreign Countries ................................................................. 6-5

6.2a Survey Results: Size of Operation Relative to Others that Sell Similar

Products and Services for Arizona Participants .................................... 6-6

6.2b Survey Results: Arizona Respondents' Evaluation of Current Cooling

Infrastructure in Mexico ..................................................................... 6-7

6.2c Components of US Food Expenditures, 1950-93 ............................................ 6-8

6.2d US Per-capita consumption of Fruits and Vegetables in the US, 1980-94 ......... 6-9

6.2e Fresh and Processing Shares of US Citrus and Non-Citrus Consumption,

1980-95 .......................................................................................... 6-10

7. 1 a Mexican and US Inflation and Preferred Interest Rates, 1980-1996 ................. 7-2

7.lb Real Interest Rates for the US and Mexico, 1980-1996 ................................... 7-2

7.lc Currency Exchange Rate Between the US and Mexico, 1980-1996 .................. 7-3

8.1 a Survey Results: Cross Cultural Language Fluency and Arizona's Visits

to Sonora .......................................................................................... 8-2

8.1 b Survey Results: tlow has NAFTA and the 1994 Devaluation of the

Peso Affected Your Profits? ................................................................. 8-3

8. 1 c Survey Results: If you have ever Traded or Done Business in any

Foreign Country (including Mexico), how have these Activities

Changed from Five Years ago to the Present? ...................................... 8-4

8.2a Survey Results: Perceived Impacts of a Fully Implemented NAFTA

and Importance of Trade to Business in 5 years .................................. 8-6

8.2b Survey Results: Which of the Following Reflects Your Views of Sonora

(Arizona) and the Rest of Mexico (USA) for your Business? .................. 8-6

8.2c Survey Results: Percent of Arizona and Sonora Respondents that were

Favorable to the Items Listed as a Means for Enhancing AZ-SO

Agribusiness ...................................................................................... 8-8

Arizona-Sonora Agribusiness Stud~: Table of Contents

Table

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.3.2a

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4.2a

4.2b

4.4a

4.4b

5.4a

5.4b

6 . .3a

6.4a

6.4a

7.la

7.4a

7.4b

Liszt of Tables

Economic and Agricultural Indicators for NAFfA Countries, 1995 ................... .3-2

Changes in US Trade Policy Towards Mexican Agricultural Products due

to NAFfA ........................................................................................... .3-.3

Changes in Mexican Trade Policy Towards US Agricultural Products

due to NAFfA ..................................................................................... .3-5

Role of NAFfA Partners in Total Agricultural Trade, 1994 ................................ .3-6

Regional Agricultural Employment in Arizona-Sonora, 1994 ............................ .3-9

National Importance of Arizona and Sonora Crops, 1995 ............................... 4-2

Average Crop Yields in Arizona and Sonora, 1995 ........................................ 4-11

Historical Arizona Prices and Cost of Production for Field Crops ................... 4-12

Assessment of Crop Sector for Arizona ........................................................ 4-19

Assessment of Crop Sector for Sonora ......................................................... 4-20

Assessment of Livestock Sector for Sonora .................................................. 5-21

Assessment of Livestock Sector for Arizona ................................................. 5-22

Arizona Exports of Agribusiness Related Goods to Mexico, in

million US$, 1989-95 ...................................................................... 6-13

Assessment of Food Processing Sector for Arizona ....................................... 6-15

Assessment of Food Processing Sector for Sonora ....................................... 6-16

Selected Farm Financial Indicators in Arizona and Sonora, 199.3-95 ............... 7-4

Assessment of Finance and Marketing Sector for Sonora .............................. 7-10

Assessment of Finance and Marketing Sector for Arizona ............................. 7-11

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Arizona-Sonora Agribusiness Study: Arizona-Sonora Road Map

Arizona-Sonora Road Map

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Northern Arizona

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Arizona-Sonora Agribusiness Study: Executive Summary

Arizona-Sonora Agribusiness Study

Executive Summary

The general objectives of this component of Strategic Economics Development Vision for the Arizona-Sonora Region are to enhance the global competitive edge of the Agribusiness sectors in the Arizona-Sonora region by identifying the resource potential both states possess as one economically integrated region and to identify competitive advantages and complementarities in order to exploit the development of new trade opportunities. The specific objectives of this study were to:

• Describe the agribusiness sectors of Arizona and Sonora and review recent global trends affecting the functioning of the agribusiness.

• Evaluate trade patterns and linkages of the agribusiness sectors of Arizona and Sonora.

• Analyze the competitive position of the Arizona-Sonora agribusiness sector.

• Analyze the implications of NATTA for the functioning and future perspectives of the region's agribusiness activity.

• Identify main impediments to the expansion of the region's agribusiness cluster.

• Recommend solutions to enhance development potentials and to overcome impediments identified for expanding the region's agribusiness industries.

This study used two main sources for obtaining data and information: primary data, and secondary data. Primary data has been collected by interviewing agribusiness individuals in both Arizona and Sonora using similar questionnaires. In Arizona, a total of 175 questionnaires were mailed (faxed in some cases) out to selected "agribusiness leaders" and individuals involved in agribusiness activities. Of the I 7 5 questionnaires sent out, 93 were returned representing a 53% response rate for Arizona. In the Sonoran side, personal interviews were used to collect primary data from 95 individuals in various sectors of the agribusiness cluster. Thus, a total of 188 agribusiness individuals were interviewed in Arizona and Sonora for this study.

In addition to the primary data, secondary data has also been presented. Secondary data were gathered from federal and state sources concerning size, importance and comparative advan-

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Arizona-Sonora Agribusiness Study: Executive Summary --------tages of the agribusiness sectors in Arizona. Main sources for secondary for Sonora were INEGI, BANCOMEXT, SAGAR, CNA, BANXICO and publications from organizations, commerce offices, and research reports. In addition, a Technical Advisory Committee (TAC) was established with members representing government agencies and private firms from the states of Arizona and Sonora. The TAC provided guidance in highlighting issues to address. The data thus obtained was used to carry out the analysis for the study.

Key Findings:

• Survey results indicate the Region's agribusiness sector is becoming more global and that enhanced opportunities for risk reduction exist by cross border expansion. The agribusiness sector of Arizona-Sonora strongly believes that trade will be more important to them in future. This overwhelmingly indicates that issues which promote Arizona-Sonora trade linkages should be brought to the forefront of any discussions related to agribusiness.

• Transborder linkages within the Region's agribusiness sector indicate that production agents and marketing firms are perhaps the most developed of all economic sectors in the region. The level of integration comprises all components of an economic cluster.

• Integration, complementarity, and regional specialization has allowed firms to become more competitive. Technical assistance and input trade for Arizona has increased with Sonora while it has declined some for the rest of Mexico.

• Arizona and Sonora agribusinesses are reasonably well equipped in terms of the other language. Survey participants on both sides of the border are well aware of the other border state and display aptitude and interest in cross-border agribusiness activities. This is an encouraging sign and speaks well of the agribusiness sector in the Arizona-Sonora region. Both states recognize cultural differences as a bigger barrier to trading with each other than language.

• About half of the Arizona-Sonora agribusiness respondents are equipped to take . advantage of the Internet, one of the latest information tools. Subsequently, this tool may be a good way to disseminate information regarding trade regulations and opportunities. Because the sample ls not random but, by design, includes more "agribusiness leaders" these numbers are high for the average of all agricultural producers from the Region.

• 51 percent of Arizona participants agree that phytosanitary requirements at the border are more political than scientifically based with only 12 percent disagreeing (37 percent had no opinion). Thus among agribusiness individuals, there is a general consensus that phytosanitary conditions are political and should be put on a more scientific basis.

• Little support was found for the notion that agribusinesses in Arizona believe that Sonora and the rest of Mexico are competitors for their business, except for crop producers. Sonoran agribusinesses do not view Arizona as a competitor, but crop and food processing individuals do view the rest of the US as a competitor. Both states strongly agree that each others states and countries have expanding markets for their business.


• Streamlining border crossing formalities and minimizing delays at the border were ranked as the most important issue to be addressed for promoting regional agribusiness on both sides of the border. Crop and food processing individuals most strongly voiced this concern.

• Legal agreements that offer enforcement of contracts between Arizona and Sonora individuals are of utmost importance for capital to flow from Arizona to Sonora. A PACA-type legal agreement is essential for enhanced produce flow into Mexico. Understandably, cross-border legal issues are more important for Arizona agribusiness than Sonora's.

• Unified standards and grades were strongly suggested as a necessity for Sonoran agricultural products. Arizona participants also agree that a USDA type of certification is needed for US consumers to accept products from Mexico.

• Loan defaults and the inability of creditors to secure property in Sonora greatly restricts credit flows from Arizona to Sonora.

• Sonoran transportation and cooling infrastructure is lacking. As trade and regional joint ventures increase, inadequacy of Sonoran infrastructure will be a limiting factor in regional agribusiness development.

• Statistical information is unavailable to make equal comparisons with Arizona and Sonora. Statistical information about Sonoran agriculture and agribusiness is inadequate, inconsistent, and difficult to access. Lack of information and contacts was cited by Arizona survey participants as a reason for not doing business in Mexico.

Strategic Recommendations:

• Delays and red-tape at the border have been a costly item for agribusinesses moving perishable products and live cattle across the border. We recommend that border crossing formalities for products be streamlined, especially for custom procedures. This should be a top priority in any agenda for promoting Arizona-Sonora agribusiness. We recommend a speedy completion of the unified port management project which brings full modernization to border points of entry.

• Legal issues related to contract enforcement and property ownership rights in Sonora are important for Arizona and Sonora joint venture and investment activities. For the produce industry, a Perishable Agricultural Commodities Act (PACA) system in Sonora would alleviate many concerns and risks related to payments and dispute settlement. Efforts should be made to develop a legal system that offers enforcement of contracts between Arizona and Sonora individuals with appropriate financial consequences.

Similarly, a Bilingual Regional Agency (BRA) could offer a certified trading license for legal contracts made between Arizona and Sonora agribusinesses. A bond license would be required for individuals to attain a certified trading license. The program would be voluntary and should have at least three different levels of bond required, depending on the amount of their trade transaction(s). Individuals would Jose their bond money and good standing with the BRA if they


did not fulfill all contracts and agreements made in accordance with BRA guidelines. All BRA members will have the right to know the history and current standing of past and current members. The BRA would provide compensation to the damaged party in a timely manner using bond moneys.

Loan default Is a serious problem in Sonora. Legal arrangements need to be made so that rights of ownership and property liens can be settled in a fair and timely manner. Such protections are necessary for capital and products to flow easily from Arizona to Sonora.

• Efforts should be made to unify or mutually recognize standards and grading. This was rated as one of the most Important issues by survey participants on both sides of the border. Grading issues currently limit Arizona beef product exports to Sonora and Mexico. Unified standards and grades was strongly suggested as a necessity for Sonoran agricultural products. Arizona participants also agreed that a USDA type of certification was needed for US consumers to accept products from Mexico. Unified Hazard Analysis Critical Control Point (ttACCP) procedures will assure US consumers that products from Sonora are safe.

• Complementarities between Sonora's feeder industry and Arizona's feedlots should be enhanced by seeking APHIS approval for the "pilot project" of feeding intact heifers from Sonora. Procedures and language for the "in-bond" feeding program prior to NAFTA should be followed. Working together to impact federal legislation in Washington D.C. and Mexico City was favorably rated by over 70 percent of Arizona and Sonora respondents.

• Capital investment for improving Sonoran transportation infrastructure and cooling facilities is necessary for the Arizona-Sonora agribusiness to grow in the long-run. An improvement in the Sonoran rail and road transportation infrastructure is essential for the Guaymas port to be a viable outlet for Arizona exports abroad.

• Lack of information and contacts was cited by survey participants as one of the reasons for not doing business in Mexico. We recommend that a directory of producers, intermediaries, government trade and legal agencies, university faculty, financiers, brokers and sellers associated with agribusiness in Arizona and Sonora be published. Such a directory would be very helpful for agribusiness firms and policy makers on both sides of the border. The directory could be available on a World Wide Web site and/or published in print format.

• Survey results indicate that Jong-standing relationships based on trust are essential for a strong business environment. The strong linkages that already exist between Arizona and Sonora can be considered Arizona's comparative advantage over other states in the rush to trade with Mexico. Building on these linkages, Arizona can use Sonora as a gateway to the rest of Mexico. To this end, we recommend that Arizona businesses make every effort to explore Sonora. Activities we recommend to improve relationships include: small groups of 3 to 5 individuals from both Sonora and Arizona with mutual interests to visit operations across the border; commodity group delegations with an identified production, trade, policy, or educational theme; and the directory men-

Arizona-Sonora Agribusiness Study: Executive Summary -----------tioned above. These tools will provide better opportunities for face to face interaction and an understanding of the business atmosphere for cross-border agribusiness activities. These steps and others that facilitate interaction, will improve Arizona's position for future involvement in Sonora and the rest of Mexico. The Arizona-Mexico Commission may be the best organization to help facilitate and coordinate these visits and the directory.

• Establish a regional agribusiness council aimed at implementing and assisting medium and long-term strategic actions for agribusiness in the Region. Activities the council may address are: i) propose language for unifying grades and standards (including chemical use and sanitation standards); ii) prioritize and coordinate research programs for the Region; iii) develop and coordinate activities to market jointly produced products; iv) identify inputs and services supplied from outside of the Region that have the potential to be supplied competitively from within the Region; v) design and evaluate strategies for increasing the competitiveness of the Region's agribusiness sector. The council should be integrated by representatives from producer organizations, government agencies, and university faculty.

• We recommend better communication and technology transfer between universities and industry since companies that utilize university resources have higher rates of productivity than their counterparts. University faculty should be included as a part of the small group visits, commodity group delegations, and the directory mentioned above.

• We recommend that a more coherent and consistent statistical database for Arizona-Sonora agriculture be developed. The WWW presents itself as an ideal method for disseminating statistical information to agribusiness leaders.

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Arizona-Sonora Agribusiness Studl_j: Executive SUin.rnal"j -----------

Arizona-Sonora Agribusiness Study: Introduction

Chapter 1

Introduction

Under the auspices of the Arizona-Mexico and Sonora-Arizona Commissions, the Department of Agricultural and Resource Economics at the University of Arizona, El Centro de Investigaci6n en Alimentaci6n y Desarrollo, A.C. (CIAD), and El Colegio de Ia Frontera Norte (COLEF), analyzed the Arizona-Sonora agribusiness cluster. This study comprises component 4.3 of a larger binational project known as the Strategic .Economic Development Vision for the Arizona-Sonora Region (S.EDVASR).

The overall aim of SEDVASR can be summarized as an attempt to identify actions that the governments of Arizona and Sonora can take to improve the region's position in the global economy. The stated general objectives of SEDVASR are:

• Develop Arizona and Sonora as a single economic region with a competitive advantage in the global market.

• Facilitate the movement of goods, services, people and information through the region and promote the establishment of a trade corridor with Arizona and Sonora as a hub.

• Promote linkages and eliminate barriers to facilitate economic development and to promote complementarity in commerce, trade, and production.

• Stimulate and encourage cross-border cluster development in the SonoraArizona region to increase value-added economic activities.

• Create new external markets and new market opportunities for the ArizonaSonora region.

• Identify and develop economic foundations, infrastructure and services needed to reach the desired level of competitiveness in the region.


1.1 Objectives of the Study

The general objectives of this component of SEDVASR are to enhance the global competitive edge of the agribusiness sectors in the Arizona-Sonora Region by identifying the resource potential both states possess as one economically integrated unit and to identify competitive advantages and complementarities In order to exploit the development of new trade opportunities. The specific objectives of this study were to:

• Describe the agribusiness sectors of Arizona and Sonora and review recent global trends that affect the functioning of agribusiness activity.

• Evaluate trade patterns and linkages of the agribusiness sectors of Arizona and Sonora.

• Analyze the competitive position of the Arizona-Sonora agribusiness sector.

• Analyze the implications of NAFTA for the functioning and future perspectives of the region's agribusiness activity.

• Identify main impediments to the expansion of the region's agribusiness cluster.

• Recommend solutions to enhance development potentials and to overcome impediments identified for expanding the region's agribusiness industries.

1.2 Methodology

Information Sources and Data Collection

This study used two main sources for obtaining data and information: primary data, and secondary data. Primary data has been collected by interviewing agribusiness Individuals in both Arizona and Sonora. On the Arizona side, a total of I 7 5 questionnaires were mailed or faxed to selected "agribusiness leaders" and individuals involved in agribusiness activities. A variety of sources were used to identify these Individuals that include farmers, ranchers, feedlot operators, dairy farmers, agribusiness entrepreneurs, brokers, bankers, commodity associations, and members of professional organizations, government and educational institutions. In selecting these individuals, an effort was made to obtain a wide representation of agribusiness industry both in terms of geographic location and commodity distribution. The questionnaire utilized in Arizona is provided in Appendix A.

Of the I 7 5 questionnaires sent out, 9.3 were returned representing a 5.3% response rate for Arizona. All the survey results for Arizona are based on the responses from these 9.3 individuals. Based on what respondents identified as their product(s) or area(s) of expertise, the 9.3 respondents were then classified into four groups: crops, livestock, food processing, and finance and marketing. Depending on the responses, an individual may

Arizona-Sonora Agribusiness Study: Introduction II ------------be identified with more than one category. Using this procedure, .38 individuals are identified with crop sector, .3.3 for the livestock sector, 21 for food processing and 2.3 for financing and marketing sector.

On the Sonoran side, personal interviews were used to collect primary data. These interviews in Sonora were conducted by research staff at CIAO, Hermosillo and El Colegio de la Frontera Norte, Nogales, Sonora. Using the Arizona questionnaire as a starting point, four similar questionnaires were developed for Sonora for crops, livestock, food processing, and financing and marketing individuals. The four questionnaires are presented in Appendix B. These questionnaires were then used to conduct a total of 95 personal interviews - .3.3 individuals from the crop sector, 14 from livestock, 28 from food processing and 20 broker/finance individuals. As in Arizona, a considerable representation of agribusiness activity in the State of Sonora was obtained, covering the most important producing regions: Desierto de Altar (San Luis Rio Colorado and Caborca); CentralBorder region (Nogales-Magdalena); Central region (Hermosillo and Carbo); Southern region (Guaymas-Empalme, Valle del Yaqui-Ciudad Obregon, Valle del Mayo-Navojoa and Huatabampo); and Sierra region (Baviacora and Cumpas). Thus, a total of 188 agribusiness individuals were interviewed in Arizona and Sonora for this study. Besides administering the questionnaires, four focus group sessions were carried out; two in Hermosillo and two in Ciudad Obregon.

In addition to primary data, secondary data were relied on for this study. Secondary data were gathered from federal and state sources concerning size, importance and comparative advantages of the agribusiness sectors in Arizona and Sonora. Main sources for Sonora were INEGI, BANCOMEXT, SAGAR, CNA, BANXICO, the Government of the State and publications from private organizations, commerce offices, and research reports. Main secondary data sources for Arizona were Arizona Agricultural Statistics, US Agricultural Statistics, USDA/ERS (United States Department of Agriculture/ Economic Research Service), and FATUS (foreign Agricultural Trade of the US). A Technical Advisory Committee (TAC) was also established with members representing government agencies and private firms from the states of Arizona and Sonora. The TAC provided guidance in directing issues to address and valuable expertise in the "draft review" of this study.

Analytical Framework

A fundamental analytical dimension in the design and elaboration of the SEDVASR project is the application of the cluster and foundations approach. Thus, along with the analysis of the economic structures of agribusiness activity in the Region, cluster and foundations concepts were also applied.

Industrial clusters and economic foundations are considered as two main sources of comparative advantage that provide knowledge inputs to companies within the new economics of technological advance, global competition, and corporate specialization (SRI, 1990; Porter, 1990). More specifically, industrial clusters represent concentrations of competing, complementary, and interdependent firms across several industries, including component suppliers, service providers, and final product manufacturers. That is to say, a cluster Is a group of industries connected through vertical and horizontal linkages. According to this view, the category of Industrial clusters more accurately accounts for comparative advantage in today's global economy than traditional industry sectors.


In a similar way, economic foundations are the complex stock of resources needed to compete successfully in the global economy (SRI International; Porter). As described in figure 1.2a, the most important economic foundations are skilled labor, access to advanced technology, venture and investment capital, suitable and advanced physical infrastructure, and attractive quality of life. Porter argues that these foundations are more important to high-quality economic growth than traditional business climate factors such as cheap labor and land, and special tax incentives.

Human Resources

Figure 1.2a. Key Components of a Cluster.

. ·.. , .

(suppliers or raw materials, parts, components and services)

Economic Foundations

D D D D Research Financing Business Physical

and and Capital Climate Infrastructure Technology Resources

Cooperation, Complementarity, and Linkages with Buyer-Supplier leads to Innovation and Efficiency

Porter's model of the determinants and dynamics of national (regional) advantage were considered in this study. According to the model, the four following broad attributes of a nation (region) shape the environment in which local firms compete, promote or impede the creation of competitive advantage (Porter):

Arizona-Sonora Agribusiness Study: Introduction -----------• Factor conditions: the nation's (region's) position in factors of produc

tion, such as skilled labor or infrastructure, necessary to compete in a given industry.

• Demand conditions: the nature of home demand for the industry's product or service.

• Related and supporting industries: the presence or absence in the nation (region) of supplier and related industries that are internationally competitive.

• Firm strategy, structure, and rivalry: the conditions in the nation (region) governing how companies are created, organized, and managed, and the nature of domestic (local) rivalry.

According to Porter, the determinants, individually or as a system, create the context in which a region's firms are born and compete. Thus, regions are most likely to succeed in industries or industry segments where the regional "diamond" above is most favorable. The "diamond" is a mutually reinforcing system since the effect of one determinant is contingent on the state of others.

In addition to the "diamond's" four determinants, the elements of chance and government influence a region's system and competitiveness. Chance events are developments that have little to do with circumstances in a region or nation and are often largely outside the control of firms (and often the regional and national governments) to influence. Some examples are acts of pure invention, major technological discontinuities, significant shifts in world financial markets or exchange rates, external political developments, discontinuities in input costs such as oil shocks, wars, etc. Chance events create discontinuities that can unfreeze or reshape industry structure and provide the opportunity for one region's firms to supplant another's. They create discontinuities that allow for shifts in the competitive position of an industry.

Government is prominently discussed in treatments of international competitiveness. Many see it as a vital, if not the most important, influence of modern international competition. However, the government's role is not considered as a fifth determinant in the competitive "diamond." Government's real role in national and regional competitive advantage is in influencing the four determinants, as described in figure 1.2b. Government has an important influence on national and regional competitive advantages, though its role is inevitably partial. Government can hasten or raise the odds of gaining competitive advantage (or vice versa) but it lacks the power to create advantages by itself. Some of the factors are as follows: subsidies, policies toward capital markets and exchange rates, fiscal policy, external trade policy, establishment of local or national product standards, gradings and regulations, antitrust legislation, and government purchases.


Figure 1.2b. The Complete System of the Determinant of National (Regional) Advantage.

Chance """""'""''""' ... ,,,,,,,,,,,,,

Firm Strategy, Structure, and Rivalry

----F-a-:t-o_r ___ ·•,,,~·,.\:~::~:~::::·· . ..... .... ~::::::::\,.,< ... · -~ .-----------. Conditions •,, Demand Conditions

~ .............. ::::::,,, \ .. ,,,,,,,,,,,., ,,

' .,,,,,.,,,,.,.,.,,,,.,,,.,,.,,,.,,.,,,.,,.,,,.,.,

Related and Supporting Industries

Source: Adapted from M. Porter (1990).

•, ............. , .... •

A summary of the strengths/weaknesses and opportunities/threats for agribusiness clusters was made to ascertain the competitive position of the Region. Agribusiness is conceived as "an integrated food system that extends from farm to factory to retail consumer, including everything from food production to the manufacture of farm Implements and pesticides to food processing and food marketing" (Burbach and Flynn). According to Burbach and Flynn, agribusiness was first used In the late l 950's when describing the integrated food system of the United States. Under this framework, the agribusiness cluster includes production chains and related product transformation activities in agriculture, livestock, forestry, fishing/aquaculture. In this study, the agribusiness cluster is based on the study of crops, livestock, food processing, and their related financing/marketing activities.

Arizona-Sonora Agribusiness Study: Introduction • ----------I.3 Organization of the Report

The remainder of this report is organized into eight more chapters. Chapter 2 describes megatrends for agribusiness in a global context. Chapter 3 gives an overview of the agribusiness cluster in the Arizona-Sonora Region. Chapters 4, 5, 6 and 7 present results for the crop, livestock, food processing, and finance and marketing sectors respectively. Chapter 8 gives a synthesis of the general survey results from the primary data. Conclusions and recommendations are given in Chapter 9. Questionnaires used for interviews for Arizona and Sonora are given in Appendices A and B, respectively. Appendix C presents a complete description of survey responses for both Arizona and Sonora. TAC members for this study are listed in Appendices D and E.

I .4 References

Burbach, R. and P. Flynn. Agribusiness in the Americas, Monthly Review Press, New York, 1980.

Porter, Michael. The Competitive Advantage of Nations, The Free Press University, New York, 1990.

SRI International. Economic Success in the J 990's. A New Perspective and Analytical Approach, Concept Paper, Menlo Park, California, August, 1990.


Arizona-Sonora Agribusiness Study: Megatrends

Chapter 2

M:egatrends

2.1 The Globalization Process

Increased integration, free markets, and globalization of production and manufacturing are central features of today's world economy that seem likely to continue as we move Into the twenty-first century. Unprecedented levels reached by these tendencies in the course of the last two decades has mainly been impelled by extraordinary advances in information and communication technologies (Amin and Thrift; Castells; Ohmae; and Harris).

Globalization can be characterized as a multi-dimensional process that transcends the economic, political, social and cultural spheres. Economic globalization implies integrating production, marketing, finance, information and technology. According to Castells, the difference between a "world" and "global" economy is its capacity to work as a unit in real time on a planetary scale. Several characteristics and outcomes of the globalization process, both functional and spatial, have been identified. Amin and Thrift identify these characteristics as: i) an increasing centrality of finance; ii) greater reliance on "expert systems"; iii) transnationalization of technology; Iv) a rise in global oligopolies; v) increased transnational economic diplomacy and the globalization of state power; vi) an Increase in global cultural flows; and vii) the rise of a new global geography, as a result of the processes described above.

With increasing integration of production and trade, and the opening of new markets, competition has also heightened. Some tendencies and challenges resulting from the new environment are: i) higher quality standards; ii) keen competition at every phase from production through final marketing; iii) strategic alliances of global firms; Iv) trade among developed countries; and v) neo-protectionism (Presldencia de la Republica).

2.2 Globalization and Agribusiness

The labeling of globalized agriculture has been done to point out that modern agriculture Is increasingly constructed from economic and regulatory processes which are global in scope and character (Le Heron). According to Le Heron, the term globalized

iii Arizona-Sonora Agribusiness Study: Megatrends

agriculture implies new historical relationships for agri-food systems, including new relationships among nations and states.

Recent trends in the transformation of commodity chains have also had a fundamental impact on agribusiness activity. In this regard, Gereffi argues that many of these commodity chains have become "buyer-driven" rather than "producer-driven" as in the past. The "buyer-driven" commodity chain takes place in a much more decentralized way than the traditional "producer-driven" commodity chain, and the control over production and distribution systems is exerted by firms that specialize in the design and marketing of a specific commodity. Korzeniewicz suggests that this type of decentralization is globally more efficient than the traditional method and can be associated with new organization patterns in the distribution, marketing and consumption processes.

Similarly, Le Heron integrates agro-production systems as the cornerstone of globalized agriculture and he points out that "each chain of agribusiness from the farm to the retail outlet is increasingly an interlocking techno-economic multiregional production system, resting on the addition or substitution of industrial and bio-industrial processes and products," Finally, as a consequence of this process of globalization and agrosystems integration, classical distinctions between agriculture and agro-industry are becoming more blurred.

2.3 Technological Innovation, Transport and Communications

Increased competitiveness and international market position requires continued updating of technological innovations. In the same way, the incorporation and diffusion of technical progress needs the existence of a suitable technological infrastructure, including qualified human resources for servicing capital (CEPAL). Relatively recent developments in the agribusiness sector have given new dimensions and created major opportunities. Among these developments are engineering, biotechnology, lowcost telecommunications, distribution and management systems, and changing dimensions of market organization (Johnson and Martin).

Biotechnological developments related to vegetative cell cultures and the transfer of genetic material among plants are increasing the genetic pool available for farming (UNCTAD). These developments are intended to increase yields, nutritional value, and/ or varieties that are better adapted to specific soil and climate conditions. Other technological innovations that have increased efficiency and productivity include modern irrigation systems (drip, ferti-irrigation, computerized application), plastics, carbon dioxide, and specialized machinery. These technologies have increased yields by up to 50 percent and have resulted in up to a 40 per cent saving in water and chemical (fertilizers, fungicides and insecticides) costs, as well as considerable labor savings (Velazquez, et al.).

Advances in transport and communication technologies have increased the share of high-value good shipments (SEDVASR, 1996). In general, advances in transportation, communication, and materials-handling technologies have reduced transportation time and cost. Thus, distance is being overcome by transport technology and communications. An example of this process is the advance in maritime transportation of perishable goods, in particular fruits and vegetables. In recent years, leading maritime freight


companies have increased their operations by investing in land transport equipment. This equipment has automated and integrated ventilation that keeps produce at its required temperature. Optimal refrigeration will reduce enzymatic degradation, humidity losses, growth of microorganisms and bacteria, and the presence of noxious gases such as ethylene (Bringas).

2.4 Shifts in Consumption and Dietary Patterns

Growing per capita incomes, decreasing average household size, and a higher share of women in the labor force, have impacted food consumer behavior and the demand for agricultural products. More recently, additional characteristics In the food market have been added, such as increasing away-from-home food expenditures and a propensity to consume quality convenience foods. These shifts in the major food markets have favored the following tendencies (Von Hesse): i) growing consumption of fresh vegetables and tropical fruits; ii) increasing demand for single-portion products (between 250 and .300 grams or 0.55 and 0.66 lbs.); iii) reductions in sugar consumption; iv) reductions in beef consumption, with increases in white meat; and v) an increase in eating out, particularly fast-food establishments. Also, aspects related to sanitation, pesticides, herbicides, and environmental issues have impacted dietary and food consumption patterns. Advances in organic agriculture emphasize these safety, environmental, and health concerns. Within the context of these global changes, some analysts argue that the recent appearance of the global fresh fruit and vegetable Industry is the harbinger of a third food regime (Le Heron).

2.5 Protectionism, GAIT, and NAfTA

In relation to world trade, the agricultural sector has been a principal source of trade disputes and controversies with high levels of protectionism. By and large, governments have continued to justify agricultural protectionist policies on the grounds of food security, national defense, and needed employment for rural areas. Thus, an unprecedented level of economic and political attention was given to agriculture in the General Agreement on Tariffs and Trade (GATT) during the Uruguay Round beginning in the mid- l 980's.

After almost a decade of negotiations with the Uruguay Round, a consensus was reached for agriculture on defining basic rules of trade practices (Martin and Winters). Some analysts believe the most significant achievement in the Uruguay Round was the negotiation framework developed (Bustrup). Among the outcomes of this process, Bustrop notes that GATT decisions concerning market access and reductions in producer and consumer subsidy equivalents will lead to changes in the competitive position of individual countries in the international market. The World Trade Organization (WTO), GATT's successor will seek to build on what was achieved in the Uruguay Round. An added challenge for the WTO Is the "reasonable" regulation of regional free trade areas within a global economy.

One of these regional free trade areas is the North American Free Trade Agreement (NAITA), that started on January 1, 1994. The general purpose of NAITA, is the liberal-

iii Arizona-Sonora Agribusiness Study: Megatrends

ization of regional trade in goods and services by the lowering or elimination of import taxes, tariffs, and quotas, as well as establishing common sanitary regulations and governmental buying practices. NAFTA can be seen as the formalization of an increasing process of functional integration, in particular between the economies of Mexico and the United States. The agricultural provisions of NAFTA call for the elimination of tariffs and non-tariff barriers among the three member countries over fifteen years, which should lift intra-regional trade in the future. According to some analyses, the traditional role of border protection in agriculture within the NAFTA region will decline (USDA, 1995). As a result, NAFTA partners are changing their agricultural policies in an attempt to ensure the effectiveness of domestic support in a free-trading environment.

MERCOSUR, the South American Common market reflects a move toward regional free trade among its member countries (Argentina, Brazil, Uruguay, and Paraguay) on that continent. ASEAN, the Association of South East Asian Nations, supports a move toward greater trade liberalization in the dynamic and potentially massive markets of the Pacific Rim. These agreements add up to an already substantially freer market for agricultural commodities with a clear trend toward even lower barriers in the future.

Spurred by these reforms, the globalization of trade in agriculture can only continue at the high rate of the last decade. Trade in the agribusiness sector is expected to grow remarkably over the next decade both within the North American market and between North America and the rest of the world. USDA ( 1996) estimates that by the year 2005, intra-NAFTA trade in agricultural products will reach $30 billion, up from about $19 billion in 1995. Preliminary assessments suggest that the United States will have advantages in the production and trade of staple grains and oilseeds, whereas Mexico's advantage will be in fruits and vegetables (USITC). Competition is already intensifying for specific commodity markets due to liberalization and specialization. As a result, regional markets are emerging in fruits and vegetables, animals and livestock products, and feed grains as producers take advantage of production complementarities and seasonal variations that transcend national boundaries (USDA, 1996).

Liberalization and globalization of trade are of particular importance as we approach the twenty-first century because the world's demand for food and high-value food products is increasing. The combination of freer markets with the effects of globalization, including improved transportation and communications, as well as continued investment in technology and research and development, should allow these needs to be met. Servicing these expanding markets is a challenge for agricultural producers throughout the world and a very clear opportunity for US agriculture.

Figure 2.5a describes projections for the value of US agricultural exports through 2006 and shows a continuation of recent increases in export growth. Agribusiness firms are finding that there is great potential for profits in every corner of the globe and are going about creating the business infrastructure necessary for such trade. For example, the value of exports in the processed food sector has increased 55 percent in only the last five years (Ruppel). The increase in competition continues to move producers of all types toward greater efficiency and higher productivity.


Figure 2.Sa. Value of US Agricultural Exports, 1986-2006.

Billion Dollars

$90--.---------------------------,

$80

$70

$60

$50

$40

$30

$20

$10

$0 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

Source: FAPRI.

2.6 References

Amin, Ash and Thrift, Nigel, Globalization institutions, and Regional Development in Europe, Oxford University Press, Great Britain, 1994.

Bringas Guedea, Luis, "La Transportaci-n Mar'tima de Productos Perecederos. Un Gran Avance Hada los Mercados lnternacionales," Productores de Hortalizas, August 1995.

Bustrop, Klaus, "Agriculture and the GAIT," The international Review of World Trade, 1996: 69-73.

Castells, Manuel, The Rise of the Network Society, Blackwell Publishers, Great Britain, 1996.

CEPAL, Equidad y Transfonnaci-n Productiva: un Enfoque Integrado, CEPAL-ONU, Santiago de Chile, 1992.

,. Arizona-Sonora Agribusiness Study: Megatrends

Food and Agricultural Policy Research Institute. FAPRI 1997 World Agricultural Outlook, Staff Report #2-97, Iowa State University and The University of MissouriColumbia, January 1997.

Gereffi, Gary, "The Organization of Buyer-Driven Global Commodity Chains: How US Retailers Shape Overseas Production Networks," in G. Gereffi and M. E. Korzeniewicz (eds.), Commodity Chains and Global Capitalism, Westport, Greenwood Press, 1994.

Harris, Nigel, The End of the Third World. New Industrializing Countries and the Decline of an Ideology, Penguin Books, Great Britain, 1986.

Johnson, S.R. and S.A. Martin, Industrial Policy for Agriculture in the Global Economy, Iowa State University Press/AMES, Iowa, 1993.

Korzeniewicz, Roberto P., "Una Visi-n Alternativa: Cadenas Mercantiles Globales," Investigaci-n &on-mica 214, Octubre-Diciembre de 1995: 15-30.

Le Heron, Richard, Olobalized Agriculture. Political Choice, Pergamon Press, Oxford, 1993.

Martin, W. and L. A. Winters, "Trade and Developing Economies," The International Review of World Trade, 1996: 45-50.

Ohmae, Kenichi, The Borderless World Power and Strategy in the Interlinked Economy, Harper Perennial, New York, 1991.

Presidencia de la Republica, "Hada una Estrategia de Competitividad en Colombia," Encuentro Internacional de Competitividad, Consejer'a Econ-mica y de Competitividad, Cali, Colombia, September 1994.

Ruppel, Fred. "Globalization of the Processed Foods Market." Agricultural Outlook, Economic Research Service, United States Department of Agriculture, Washington D.C., January-February 1997

SEDVASR, Transportation and Distribution as an Economic Cluster in the Arizona-Sonora Region, The Arizona University Consortium and the Sonora University Consortium, September 1996.

UNCTAD, Aspectos Comerciales y de Desarrollo y Consecuenclas de las Tecnolog'as Nuevas e Incipientes: el Caso de la Biotecnolog'a, lnforme de las Secretar'a de la UNCTAD, Conferencia de las Naciones Unidas sobre Comercio y Desarrollo, Doc. TD/B/C.6/154, Ginebra, March 1991.

USDA, International Agriculture and Trade Report. NAFTA. Situation and Outlook Serles, WRS-95-2, May 1995.

USDA, International Agriculture and Trade Report. NAFTA. Situation and Outlook Serles, WRS-96-3, September 1996.

Arizona-Sonora Agribusiness Study: Megatrends •H USITC, The Likely Impact on the United States of a Free Trade Agreement with Mexico,

USITC Publication 2353, Washington, D.C., February 1991.

Velazquez, D., J.E. Gallego, and E. Soto, "lmpacto Tecnol-gico del Riego Presurizado," Agros'ntesis, October 1994: 13-16.

Von Hesse, Milton, "Pol'ticas Publicas y Competitividad de las Exportaciones Agr'colas," Revista de la Cl~PAL 5.3, August 1994: 129-146.


Arizona-Sonora Agribusiness Study: Overview of the Agribusiness Sector

Chapter 3

Overview of the Agribusiness Sector

3.1 Agribusiness in the National Economies

This section gives an overview of the Arizona-Sonora region in the context of the three NAFTA countries. Table 3.1 a compares key economic and agricultural indicators for the US, Mexico, and Canada. The US is by far the biggest of the three economies in terms of total GNP and it also has the highest per-capita GNP.

The US has about 464 million acres of arable land which is about two and half times the combined arable land of Canada and Mexico. More irrigated land resides in the US than in both Mexico and Canada as well. The US has about 52 million acres of irrigated area while Mexico has about 15 million acres. Although Mexico's arable land is about 13 percent of the US, Mexico has 1. 7 million more farms indicating that the average farm size in Mexico is much smaller.

Due in part to its larger land base, the US also leads in terms of the value of agricultural production. Total value of all agricultural production in 1995 was $140 billion (US dollars throughout unless otherwise noted). Mexico's value of agricultural production during the same year was $45 billion. Although, In terms of value of production, Mexico's agricultural sector is smaller, it contributes to a larger share in the national economy. The contribution of production agriculture to the economy of both the US and Mexico has been declining for a long time. Production agriculture's share of GDP is about 2 percent for the US and 7 .4 percent for Mexico. Only 3 percent of the US work force is employed in the production agricultural sector, whereas Mexico's agricultural sector employs 22 percent of its labor force.

All three NAFTA countries have been increasing their dependence on foreign markets as an outlet for domestic production. Trade of all goods is increasing in importance for each country's national economy, ranging from less than 1 O percent of GDP for the US to 15 percent of Mexico's GDP. This also helps explain why there are differences in opinions about the importance of trade, trade agreements, etc. among the NAFTA partners.


Table 3.1 a. Economic and Agricultural Indicators for NAFl'A Countries, 1995.

Units Canada us

General EconQmit lndicf!tor~: Population Million 28.4 263.5

Per capita GNP us$ 19,970 24,740

Inflation in 1995 (% change in CPI) % 1.7 1.9

Agli~ultural Indicators: Number of Farms Million 0.28 2.10

Agricultural Land Mil. Acres 180 1055

Arable Land Mil. Acres 114 464

Irrigated Land Mil. Acres 2.5 52

Arable Land / Agricultural Land % 62 44

Arable Land Per Capita Acres/capita 4 2

Value of Agricultural Production Bil. US$ 18.3 140.0

Share of Production Agriculture in GDP % 2.0 2.0

Share of Food Processing Industry in GDP % 2.0 1.5

Share of Labor Force in Agriculture % 3 3

Minimum Hourly Wage Rate (Average wage

rate using an 8 hour day for Mexico) us$ 4.63 4.25

Value of Agricultural Exports Bil. US$ 14.6 55.8

Value of Agricultural Imports Bil. US$ 9.7 30.0

Trade Surplus in Agriculture Bil. US$ 4.9 25.8

Share of Agriculture in Total Exports % 7.9 9.6

Share of Agriculture in Total Imports % 5.9 4.0

Sources: USDA, ERS, BANCOMEXT, SECOFI, INEGI, FAO, and Canada Statistics.

JYAFTA and Agricultural Trade

Mexico

93.9

3,610

42.3

3.80

245

62

15

25

1

45.0

7.4

6.2

22

0.33

6.6

5.3

1.3

8.3

7.3

The North American Free Trade Agreement (NAITA) was written with the intent to liberalize trade among the three countries. NAITA was signed into law on December 8, 199.'.3 and implemented on January 1, 1994. Goals of the agreement were to eliminate all tariff and non-tariff barriers of trade between members over 15 years, facilitate crossborder investment, and expand cooperation in other areas such as the environment and labor protection. NAITA eliminated quotas on trade among the North American countries and replaced quotas with a tariff-based system. For many sensitive products, Tariff-Rate Quotas (TRQ) are in effect, permitting a specific volume of imports at re-


duced or zero tariff, and imposing a higher tariff for greater quantities of imports. Tables 3.1 b and 3.1 c provide a selected listing of changes in US and Mexican trade policies for specific commodities due to NAFTA.

Agriculture's share of total trade varies with the US and Mexico, but in a less pronounced manner. As shown in table 3. 1 a, agricultural exports and imports accounted for 7 .3 percent and 8.2 percent of Mexico's total trade in 1994, respectively. In spite of the US's large trade deficit for all goods, agriculture has a strong surplus with it's exports and imports accounting for I 0.2 percent and 4.5 percent of total trade, respectively. Thus, without agricultural exports, the US trade deficit would be much larger.

Table 3.1 b. Changes in US Trade Policy Towards Mexican Ag. Products Due to NAFTA

Trade policy before NAFTA Trade policy with NAFTA

Wheat *Tariff of 0. 77 cents per kilogram *Tariff on durum phased out over 10 years, tariffs on other wheat phased out over 5 years

*6.3% tariff on wheat seeds *Tariff on wheat seeds eliminated immediately

Cotton *Raw cotton quota of about 18,510 bales *Duty-free tariff-rate quota of 46,000 bales, growing 3% per year

*4.4% tariff on extra long staple cotton *Over-quota tariff of 26% for all types of cotton phased out over

10 years

Vegetables *Tariffs, many applied seasonally, range *Tariffs eliminated immediately or phased out over 5, 10, from zero to more than 30% or 15 years

*Special safeguard TRQ of 165,500 tons for fresh tomatoes from 3/1- 7 /14, up 3% per year. 10-year phase-out of in-quota tariff of 4.6 cents/kg. 4.6 cent/kg over-quota tariff until Year 10.

*Special safeguard TRQ of 172,300 tons for fresh tomatoes from t 1/15-2/28, up 3% per year. 10-year phase-out of 3.3 cent/kg in-quota tariff until Year 10.

*Special safeguard TRQ of 130,700 tons for onions and shallots from 1 /1-4/30, up 3% per year. 10-year phase-out of 3.3 cent/ kg in-quota tariff. 3.3 cent/kg over-quota tariff until Year 10.

*Special safeguard TRQ of 3,700 tons for eggplants from 4/1 to 6/30, up 3% per year. 10-year phase-out of 3.3 cent/kg in-quota tariff. 3.3 cent/kg over-quota tariff until Year 10.

*Special safeguard TRQ of 29,900 tons for chill peppers from 10/1 to 7 /31, up 3% per year. 10-year phase-out of 2.4 cent/kg in-quota tariff. 2.4 cent/kg over-quota tariff until Year 10.

*Special safeguard TRQ of 120,800 tons for squash from 10/1-6/30, up 3% per year. 10-year phase-out of 2.4 cent/kg in-quota tariff. 2.4 cent/kg over-quota tariff until Year 10.

*Special safeguard TRQ of 54,400 tons for watermelons from 5/1-9/30, up 3% per year. 10-year phase-out of 200,~ in-quota tariff. Over-quota tariff of 20% until Year 10


Table 3.lb (cont.)

Trade policy before NA.fTA Trade policy with NAfTA

Noncitrus • Most tariffs less than 2% ad valorem *Tariffs on pears, apricots, and peaches eliminated immediately

fruit * 1. 7 cents/kg tariff on fresh strawberries *Tariff on fresh strawberries eliminated immediately

* 14% tariff on frozen strawberries *Tariff on frozen strawberries phased out over 10 years

Grapes *$1.41 /cubic meter tariff 2/15-3/31 *Seasonal tariff on fresh grapes eliminated Immediately

Citrus *2.2 cents/kg tariff for most fresh citrus *Tariffs on fresh citrus eliminated Immediately or within 5 or 10 years.

*Tariff of 9.25 cents/liter for frozen *TRQ of 151.416,000 liters for FCOJ fixed for 15 years. 4.63 cents/1. concentrated orange juice (FCOJ) tariff phased out starting Year 13. 9.25 cents/I. over-quota tariff

reduced 15% first 6 years, phased out Years 11 to 15

*Tariff of 5.3 cents/liter on single- *TRQof 15,379,500 liters ofSSOJ fixed for 15 years. 2.65 cents/I. strength orange juice (SSOJ) in-quota tariff fixed for 7 years, phased out Years 8 to 15. 5.3

cents/I. over-quota tariff phased out over 15 years

Tree nuts *In-shell nuts duties range from lcent/kg *Tariffs on In-shell and shelled nuts eliminated immediately on pistachios to 11 cents/kg on walnuts

*Higher tariffs for shelled nuts

Beef *Tariff of 2.2 cents/kg for live cattle *Tariffs eliminated immediately

*Tariff of 4.4 cents/kg for meat *Meat Import Law no longer applicable

*Imports subject to Meat Import Law

Dairy *Imports subject to Section 22 quotas *5,500-ton duty-free cheese TRQ, up 3% per year. 10-year phaseout of 69.5% over-quota rate

• 366,000-liter duty-free milk/cream TRQ, up 3% yearly, 10-year phaseout of 92-94% over-quota rates

*43-ton duty-free dry whole milk TRQ, up 3% yearly. 10-year phaseout of 94-96% over-quota rates

• 422-ton duty-free nonfat dry milk TRQ, up 3% yearly. 10-year phaseout of 78-83% over-quota rates

Source: ERS/USDA NAFTA: Situation and Outlook Series.


Table 3.1 c. Changes in Mexico's Trade Policy Towards US Ag. Products Due to NAFTA.

Trade policy-before NAFTA Trade policy with NAFTA

Wheat *Import license required *Import license eliminated immediately * 10% tariff on durum wheat * 15% tariff on all wheat, phased out over 10 years

Cotton *10% tariff *Tariff phased out over 10 years

Vegetables * 10% tariff on most vegetables *Tariffs phased out within 15 years-some at same rate as US, others faster

Noncltrus *20% tariff on most categories *Tariffs on pears and apricots phased out over 5 fruit years

*20% tariff on fresh and frozen *Tariffs on apples and peaches phased out over 10 strawberries years

*Tariff on fresh strawberries eliminated immediately *Tariff on frozen strawberries reduced to 14%,

phased out over 10 years

Grapes *Import license required *20% tariff from June 1 to October 14 phased out over 1 0 years

*Tariff eliminated immediately for rest of year

Citrus *20% tariff on fresh oranges *Tariffs on fresh oranges eliminated for June 1 and limes to November 30, phased out over 5 years for

the rest of year *Mexico will match US tariff reductions for fresh

grapefruit *Tariffs eliminated immediately for most other fresh

citrus

Tree nuts *20% tariff on walnuts, pistachios, *Tariffs eliminated immediately pecans, shelled almonds and hazelnuts

* 15% tariff on in-shell almonds and hazelnuts

Beef * 15% tariff on live cattle, 20% on *Tariffs eliminated immediately fresh beef, 25% on frozen beef, 20% on edible offal

*Tariff on edible offal phased out over 10 years

Dairy *Import licenses required *Import licenses eliminated Immediately *Tariffs up to 20% *Duty-free 40,000 ton tariff-rate quota for milk

powder, increasing 3% per year

Hides 8.. skins • 10% tariff on sheep, goat, and *Tariffs eliminated immediately pig skins

Source: ERS/USDA NAITA: Situation and Outlook Series


The US ships about 6 percent of its farm exports to Mexico and 13 percent of total US agricultural imports are from Mexico (table 3.1 d). On the other hand, the US Is a very important market and supplier of the Mexican market. Mexico purchased 7 4 percent of its agricultural Imports from the US in 1994. 'About 82 percent of Mexico's farm exports go to the US. While both countries are highly urbanized and income levels are much higher in the US, the strongest growth for agricultural products will be in Mexico. Mexico's population is young (37 percent of population is under 14 years old) and growing, which means Mexico will remain a good market for the US for many years (USDA, 1996).

Table 3.1 d. Role of NAFTA Partners in Total Agricultural Trade, 1994.

All Other us Canada Mexico Countries

Imports: (%) (%) (%) (%)

US Share from: na 18,5 12.6 68.9

Canadian Share from: 58.0 na 2.2 39.8

Mexican Share from: 74.4 6.1 na 19.5

Exports:

US Share to: na 10.3 6.3 83.4

Canadian Share to: 66.2 na 2.8 31.0

Mexican Share to: 81.7 0.7 na 17.6

Source: U.N. Food and Agricultural Organization; na indicates not applicable.

Now in its fourth year, NAFTA has produced a mixed agricultural trade picture for the US, The reduction in tariffs and non-tariff barriers contributed to a 13 percent increase in US agricultural exports with NAFTA partners (Mexico and Canada) in 1994. But in 1995, US trade with NAFTA partners fell 8 percent, affected mainly by the deep recession in Mexico following the peso crisis.

Figures 3. la and 3.1 b show the size and composition of agricultural and non-agricultural trade between the US and Mexico. Although total US exports (both agricultural and non-agricultural) to Mexico increased from 1991 to 1995, the share of agricultural exports has decreased slightly from 9.0 percent to 7 .6 percent. During this same period, US imports from Mexico have doubled from $31.3 billion to $61. 7 billion. Agricultural imports from Mexico have also increased between 1991 and 1995 going from $2.5 billion to $3.5 billion. Thus, in contrast to previous years, US agricultural imports from Mexico exceeded agricultural exports resulting in a trade deficit for agricultural products with Mexico.

During 1995, US agricultural imports from Mexico increased by 32 percent. This increase in imports was concentrated with a few products (coffee, live cattle, tomatoes) where trade barriers were non-existent or already low before NAFTA. The drop in US exports was due to the financial crisis in Mexico, not NAFTA. Mexico's 1994 peso


1995

Figure 3.la. US Exports to Mexico, 1991 and 1995.

Live Animals Meat &. Meat Products

Dairy Products Sorghum Wheat Soybeans

f--½-',-½-\c'cl-',..,..,.,,_,,.,... Corn iiiioiiiitiiiiil--Hides &. Skins

Fats Olis &. Greases

Other Ag. Exports

Live Animals Meat &. Meat Products Dairy Products Sorghum Wlieat

Soybeans

Corn Hides &. Skins Fats Olis &. Greases

Other Ag. Exports

Source: FATUS and Statistical Abstract of the U.S.

Figure 3.lb. US Imports from Mexico, 1991 and 1995.

Live Cattle

Fresh &. Frozen Fruits

6.1% 13.8% 4.0%

12.4% 0.1%

\1.~o? 4.6% 3.2%

38.1%

0.7% 6.7% 3.4% 7.2% 4.1%

13.6%

10.2% 1.8%

9.6%

42.5%

14.3%

11.6%

Fresh &. Frozen Vegetables 31.3%

i:.;;.:.:.;:.,;;:..;;;,.:,.:.;,,;.;.;,--Malt Beverages Coffee

Other Ag. Imports

1995 Live Cattle

Fresh &. Frozen Fruits

Fresh &. Frozen Vegetables

Malt Beverages

Coffee

Other Ag. Imports

Source: FATUS and Statistical Abstract of the U.S.

5.1% 13.2%

24.5%

14.6%

10.9%

31.4%

6.3%

15.7%

21.1%


devaluation triggered their financial collapse and economic recession, sharply reducing demand for most imports in 1995, In fact, the drop in US exports to Mexico would have been steeper without NAFTA, because NAFTA limited import-reducing policy responses Mexico could implement during a recession. NAFTA gave the US and Canada an advantage over other traders in the Mexican market during this difficult period. Although total US exports to Mexico decreased in 1995, US gained Mexican market share.

Trade data for the first nine months of 1996 indicate that US agricultural exports to Mexico have rebounded sharply from 1995 and should end the year with a positive trade balance. During the 1995-96 fiscal year (October-September), US agricultural exports to Mexico totaled $5.0 billion, a 36 percent increase over the previous fiscal year. During the same period, US imports of Mexican agricultural products remained about the same at $3. 7 billions. Thus, with a more stable peso, the US is again running a n agricultural trade surplus with Mexico. Corn, wheat, soybeans, and fats oils and grease exports to Mexico have gained the most from NAFTA. Overall, it appears that NAFTA has been good for US agricultural trade.

Agricultural trade issues within NAFTA during the past year range from allegations of unfair trade practices to phytosanitary concerns. As tariffs are reduced and eliminated under NAFTA, attention is increasingly focused on non-tariff barriers. Competition is intensifying for specific commodity markets in North America due to trade liberalization and regional specialization. Regional markets are emerging in fruits and vegetables, animals and livestock products as producers are taking advantage of production complementarities and seasonal variations that reach beyond national boundaries.

In summary, the economies of NAFTA will become increasingly integrated through investment, cross border sourcing, and trade as regional markets stretching across national boundaries continue to flourish. Barriers to trade will remain, although they will not be tariff barriers. Administrative barriers to trade such as customs, paperwork, and other red tape will remain. Substantial improvements are possible, particularly at crossing points from Mexico into the US, where long waits in obtaining product clearance raise the cost of doing business. Financial barriers in the form of exchange rate risk will continue to influence trade and investment patterns. Technical barriers such as phytosanitary standards, labeling requirements or product approval procedures will continue to hinder trade, particularly for selling to Mexico, where many of these norms and standards are being developed.

3.2 Agribusiness in Arizona-Sonora Region

In diverse and urbanized economies like Sonora and Arizona, farming and ranching does not represent the largest share of the economy like it once did 7 5 years ago. However, the total economic impacts of production agriculture and dependent agribusiness are substantial (Leones and Conklin). According to the Bureau of Economic Analysis, production agriculture comprises about 1.4 percent of Arizona's Gross State Product (GSP). If agriculture related services are also included, the share increases to 2.2 percent. This is comparable to the contribution of agriculture for the US. Production agriculture for Sonora contributes a larger share to its economy, just as with their national level. Figures for 1995 Indicate that production agriculture (crops, livestock, forestry and fishing) made up about 14 percent of Sonora's Gross State Product.


Table 3.2a presents a regional distribution of employment in agribusiness for Sonora and Arizona. Although production agriculture in Arizona employed only about 3.0 percent of total labor force at the state level, the share of agriculture in total employment varies greatly across regions. While production agriculture employs 5. 7 percent of the total labor force for the Colorado River region, agriculture services employ another 9.8 percent bringing the total employment for production agriculture to 15.5 percent. Thus, agriculture is relatively more important for the Colorado River and Southeast Regions of Arizona than the rest of the state.

Figure 3.2a shows the real value ( 1995 dollars) of crop and livestock sales plus government payments received in Arizona from 1980 to 1995. Total receipts have declined at an average annual rate of 2.1 percent. More traditional commodities like cotton, wheat, hay, and livestock have lead the decline, posting a 5.1 to 6. 7 percent average decrease. Whereas, lettuce, melons, and other vegetables have posted around a 5.6 percent annual increase. The value of vegetable crops has overtaken cotton as the number one crop by value in recent years. Dairy product sales have increased modestly at 0. 7 percent, reflecting an increase in population and more cheese production. Government payments have fluctuated widely over this period for Arizona, but were relatively low for both 1980 and 1995.

Table 3.2a. Regional Agricultural Employment in Arizona-Sonora, 1994.

Number of Workers Share in Total Workers

&.. &..

Food Total Ag Food Total Ag Production Ag Kindred Business Production Ag Kindred Business

Ag Services Products Cluster Ag Services Products Cluster

Arizona Regions:

Central Arizona 15,460 21,706 7950 45,116 0.9% 1.2% 0.4% 2.5%

Colorado River 6,198 10,770 113 17,081 5.7% 9.9% 0.1% 15.6%

Northern Arizona 3,802 1,791 359 5,952 2.2% 1.0% 0.2% 3.4%

Southeast Region 3,841 949 180 4,970 5.4% 1.3% 0.3% 7.0%

All Arizona 29,301 35,216 8,602 73,119 1.4% 1.7% 0.4% 3.4%

All Sonora 64,861 22.0%

Source: Regional Economic Information System, US Department of Commerce, Economics and Statistics Administration, Bureau of Economic Analysis, 1996.

Total cash receipts and livestock sales for Sonora from 1980 to 1995 are shown in figure 3.2b, in 1995 US dollars that are equivalent to figures for Arizona in figure 3.2a. Peso values were converted to US dollars by first deflating Sonora's cash receipts with Mexico's inflation rate and then converting values to US dollars by using an exchange rate in 1995 of 6.419 peso's for one 1995 US dollar. Using this method, Sonora's production agriculture sales have actually increased 0.4 percent


Figure 3.ia. Real Cash Receipts for Crop and Livestock Sectors in Sonora, 198'0-1995.

1995 Billion dollars $3.5-.-------------------

$3.0

$2.5

$2.0

$1.5

$1.0

$0.0 1980 1982 1984 1986 1988 1990 1992 1994

Source: SAGAR.

Total Receipts

Other Livestock Poultry

Pork

Cattle &. Calves

Other Crops Vegetables Grapes Soybeans C'.nm

Wheat Alfalfa

Avg. Annual % Chang~

0.4%

-3.3% -6.6%

5.5%

0.9%

0.1% 4.4% 5.6%

-10.9% R.70/n

-3.0% 11.7% -4.4%

annually from 1980 to 1995 whereas Arizona's equivalent sales decreased by 2.1 percent annually. It is interesting to note that some products have increased or remained flat for Sonora while they have declined significantly for Arizona. For example, cattle and calf sales in Sonora have increased by 0.9 percent while they have dropped 6.1 percent annually for Arizona. Sonora has more cattle numbers, but produces very few fed animals for slaughter. This is why cash receipts for cattle and calves are larger for Arizona than Sonora. Alfalfa and hay revenues have declined by 6. 7 percent for Arizona while they have increased 11. 7 percent for Sonora, with most of the increase occurring in the last few years.


Figure 3.2b. Real Cash Receipts for Crop and Livestock Sectors in Arizona, 198'0-1995.

1 995 Billion dollars $3.5 -.-----------------------

$3.0

$2.5

$2.0

$1.5

$1.0

$0.5

$0.0 1980 1982 1984 1986 1988 1990 1992 1994

Source: Arizona Ag Statistics

Total Receipts

Govt. Payments Other Livestock Dairy Products

Cattle &. Calves

Other Crops Citrus Other Veg. &. Melons

Lettuce Wheat Hay

Cotton

Avg. Annual 92 ~bslngi:

-2.1%

0.1% 1.0% 0.7%

-6.1%

0.8% 0.4% 5.7%

5.6% -6.1% -6.7%

-5.1%

Figure 3.2c provides a regional look at where production agriculture cash receipts occurred in 1995 for Arizona and Sonora. The pie charts provided show how cash receipts from crops are relatively larger than livestock for both states. Northern Arizona is almost entirely livestock while over 65 percent of cash receipts come from crops in all of the other three Arizona regions identified. The Sierra region of Sonora is predominantly range cattle country and livestock accounts for almost 70 percent of total crop and livestock sales. Navojoa and Guaymas regions are over 50 percent livestock due to their pork and poultry production. Sonora's pork and poultry production is concentrated in Hermosillo, Navojoa, and Cajeme. The Caborca region is almost entirely based on irrigated agriculture since livestock accounts for only 5 percent of it's agricultural sales.


Figure 3.Zc. Regional Distribution of Cro and Livestock Cash Receipts, 1995.

Colorado River

J I

Northern Arizona

,.,,.J (

f I I I I I I I ,__ --....,, I 'J '

6%

~94%

$100 m

I Central Arizona\,..\ ,JI I ,..;., \ ) Southeastern \1 I Arizona

$458 m

I : 34~ ,.

$870 m I $91 m ,.. --' I

Sierra

~1% 69%~

$88m

Source: Arizona Ag. Statistics and SAGAR. Delegadon Sonora.

• §

$314 m

Crops

Livestock


3.3 References

Leones, Julie P., and Neilson C. Conklin. "Agriculture in the Arizona Economy." Project Report, Department of Agricultural and Resource Economics, The University of Arizona, March 1993.

United State Department of Agriculture. "NAITA: Situation and Outlook Series." International Agriculture and Trade Reports, Economic Research Service, WRS-96-3, Washington, D.C. September 1996.

United State Department of Agriculture. "FATUS: Foreign Agricultural Trade of the United States." Economic Research Service, Washington, D.C. October/November/ December 1996.


Arizona-Sonora Agribusiness Study: Crop Sector ---------

Chapter 4

Crop Sector

4. I Overview of Arizona and Sonora's Crop Industries

Importance of Sector for Arizona and Sonora

As indicated in Chapter 3, the crop industry is the largest component of production agriculture for both Sonora and Arizona. In Arizona, cash receipts from crops have exceeded livestock in all of the last fifteen years. During the 90s, crops contributed an average of 58 percent of agricultural cash receipts for Arizona. The share of crops relative to livestock has increased recently for Arizona even though crop acreage has declined at an average annual rate of 1.6 percent from 1980 to 1995. This share increase is attributed to the growing fresh vegetable industry and a downward trend in the real value of cattle and calves sold. In 1980 vegetables contributed only 10 percent of crop receipts, whereas in 1995, favorable prices for vegetables resulted in sales that amounted to 30 percent of total crop revenues.

On average, crops accounted for 56 percent of Sonora's production agriculture revenues from 1980 to 1989 and increased slightly to an average of almost 58 percent for the years from 1990 to 1995. Sonora's crop revenues increased slightly by an annual rate of 0.13 percent from 1980 to 1995. In contrast, Arizona's real crop receipts declined by an annual rate of -0.89 percent. Alfalfa and grapes have led the way for Sonora's increase in crop value. Alfalfa made up only 3 percent of Sonora's crop value in 1980 but increased to 18 percent by 1995. Over this same period grapes have increased from 8 to 1 7 percent of Sonora's crop sales.

/Vational Persgective

Both Arizona and Sonora demonstrate areas of strength within their respective national economies. Table 4.1 a summarizes production information as a percentage of national production for crops that are ranked in the top three in either national economy. In field crops, Sonora shows definite strength ranking number one nationally in upland cotton, wheat, and sunflowers and number two in soybeans. In contrast, Arizona shows a greater national presence in the relatively small markets for pima cotton and durum

It• Arizona-Sonora Agribusiness Study: Crop Sector

Table 4. Ia. National Importance of Arizona and Sonora Crops, 1995.

%of Crop Arizona %of US AZ's Sonora Mexican SO's

Production Production Rank Production Production Rank

Field Crops:

Pima Cotton (1,000 bales) 72 19.6 2

Upland Cotton (1,000 bales) 79.3 4.5 8 .347 90.6 1

All Wheat (1,000 tons) .311 0.6 .35 1,274 .3.3.4 1

Durum Wheat (1,000 tons) 255 8 . .3 2

Garbanzo (1,000 tons) 12 9.1 ,3

Sunflower (1,000 tons) 66 52 . .3 1

Soybeans (1,000 tons) 178 .31.0 2

Principal Vegetables (mil. us$) 657 8.9 ,3 56

Head Lettuce (I oo cwt) 17,661 44.4 2

Leaf Lettuce (I oo cwt) 1,440 19.6 2

Romaine Lettuce ( I 00 cwt) 1,482 16.4 2

Cantaloupes (I oo cwt) .3,040 14.4 2

Cauliflower ( 1 oo cwt) 765 11. 7 2

Broccoli (Joo cwt) 946 7.8 2

Honeydews (1 oo cwt) 576 10.2 ,3 270 2.4 7

Spring Onions (Joo cwt) 672 6.7 4

Watermelons ( 100 cwt) 1,802 4.4 5 2,09.3 20.1 1

Green Onions (Joo cwt) .344 4.6 8

Asparagus (1 oo cwt) 1 .321 41.0 l

Fruits & Nuts (mil. US$) 108 1.0 9

Lemons (1,000 ctns) 7,200 14.9 2

Tangerines (1,000 ctns) 1,.300 10.2 ,3

Grapefruit (1,000 ctns) 2,800 2.0 4

Oranges (1,000 ctns) 2,100 0.4 4 9,492 4.1 5

Grapes (1,000 tons) 26 0.5 6 .396 6.3.0 1

1 Figures are for 1994.

Source: Arizona (AZ): 1995 Arizona Agricultural Statistics. Sonora (SO): SAGAR, 1995-96, El Sector Alimentario en Mexico, 1995. INEGl, CONAL Revista Clarldades Agropecuarias. ASERCA, Revisa Productores de Hortalizas.

Arizona-Sonora Agribusiness Study: Crop Sector II ------------wheat, where Arizona is ranked second. It should be remembered that the relative size of crop production in each country varies dramatically. For example, Arizona produces more than twice as much upland cotton as Sonora but this only puts Arizona in eight place in US production.

In vegetables, Arizona places second only to California in the production of lettuces, cauliflower, broccoli and cantaloupe. Sonora shows its strengths in watermelon and asparagus. With asparagus, in particular, Sonora has the potential to exploit their comparative advantage (see section 4.3).

In fruits, Arizona shows some strength in citrus, particularly in lemons. In orange production, Sonora produces more than four times the amount of Arizona but ranks only fifth in Mexican production. In grape production, Sonora is number one in Mexico.

Government Programs and Regulations

The US Federal Agriculture Improvement and Reform Act of 1996, signed into law in April, 1996 fundamentally redesigned farm income support and supply management programs for major program crops - wheat, corn, grain sorghum, barley, oats, rice, and upland cotton. The new law expanded market-oriented provisions started in the two previous farm bills, which had generally reduced the influence of government commodity programs in the agricultural sector.

The 1996 Act replaced deficiency payments with fixed payments (i.e., production flexibility contract payments) that are no longer linked to current plantings or current prices. Acreage reduction programs were eliminated so that program participants have total planting flexibility, except for planting some fruit and vegetable crops. Although producers have planting flexibility, elimination of target prices will make it more difficult for some producers to obtain credit. The Act makes US agricultural exports more price competitive in the long run but somewhat less price competitive in the short run (Young and Westcott).

Mexico's agricultural policy has also changed dramatically in recent years. Producer price supports formerly covering about 20 commodities are gone, along with most consumer price controls and direct input and processing subsidies. Aside from the PROCAMPO cash payments, government intervention in the farm economy is now limited to technical assistance and infrastructure support.

Thus, the emphasis of recent changes in farm programs in both countries has been on reducing economic distortions in the production, distribution, and consumption of food and agricultural products. With all three NAFTA countries now focused more on supporting producer income and letting markets operate with only limited government intervention, there is more similarity in policy approaches than ever before.

.,,, Arizona-Sonora Agribusiness Study: Crop Sector ~-~--·'1!:<· -----------------------4.2 Structure of Crop Production and Regional Competitiveness

Ejicios i-eprebenl a widespn°:ad lunn of land tenure in Mexico. They are rural lands rn;-maqed by communal groups, prirnarily in common (Thompson and Wilson). They account tor just under fifty percent of the farmland acreage in Mexico as a whole and over thirty pen en! qf the !and in '.Sonora. While there is great diversity among ejidos 1.,viil1 re~mcJs lo ii1trn'.,tn.1cture dcveloprnenl and natural endowment, Sonoran ejidos, on m 1r:rnfW. pl,Ke well rehiive to the res! of Mexico. Almost 75 percent of Sonora ejido lcirtd is ini~Jdk(L and al! dher infrastruclure measures are on par with or above national c1ve1ag1~s. T\\,s indicate~, tlr,1\ ejl,jos in Sonora might be in a good position to take advantage of tradf'. linkages with Arizona.

The t,jiclo rcJonn:; ai u,ourH:eli in ! 992 were designed to address low productivity. Ejidos on ave::, rtqe arc .. ,o e,o petce:nl less productive than comparable private farms (Yates). While critics co11sickred thes,c policies an abandonment of the ideals of land reform, from an ;11Jtih11sirw.ss perspective they were a positive step. Property rights are more secure as expropriation i.s now prohibited, foreign and corporate ownership is allowed, awl ii is po.•.;siblc !o lea~e ::1,nl e.vcn buy ejido land in some instances. The goal of the i<ew policies is Uw 1nudcJ ton oi ~jidos through investment of private capital. The 1lppu1!11, Ii ties crcai.Exl by U not01rni,. could play an important role in the agribusiness iinhag,:s between Atizona ancj Sonora.

:::;onu1d ·, u-op aueage ic; relatively more diverse and individual crop acreage varies more from one year !o the nf'.xt than Arizona's, as described in figures 4.2a and 4.2b.

(!rap Acreage, 198'0-95 .

. C:\10

1 )80 1082. 1981! 1986 1988 1990 1992 1994

Avg. Annual % Change

Total Acreage -0.8%

OtherCroos -t.7% Vegetables 6.7% Gra~s 3.1% Gar nzos -10.5% Canola -4.2% Alfalfa 0.1% Cotton -2.3%

Com 9.7%

Soybeans -3.90A:>

Wheat -t.1%

Arizona-Sonora Agribusiness Study: Crop Sector II ------------------Figure 4.2b Arizona's Crop Acreage, 198'0-95

1,000 acres

1,400-------------------------1,200

1,000

800

600

200

Q-P<~~~~:...:.:....~4--~~~....:.:,..:~,-¥..~~~..,.....'-+~~

1980 1982 1984 1986 1988 1990 1992 1994

Source: Arizona Ag Statistics.

Total Acreage

Other Crops Citrus Vegetables Feed Grain Wheat

Alfalfa/Hay

Pima Cotton

Upland Cotton

Avg. Annual % C.lumge

-1.6%

2.7% -1.6% 3.4%

-6.1% -3.7%

0.0%

0.9%

-2.7%

But like Arizona, Sonora also has just a few crops that account for over half of their harvested acreage and total acreage has trended lower. Sonora is known as the "bread basket" of Mexico. On average, wheat accounted for 43 percent of Sonora's crop acreage from 1980 to 1995. Part of the reason why Arizona's acreage for individual crops has not varied as much as Sonora's is due to the US farm programs that used to exist. These programs didn't allow for a great deal of planting flexibility from one year to the next. From 1980 to 1995, total harvested acreage has declined at about half the percentage rate for Sonora that it has for Arizona. Total acreage has dropped at an average annual rate of 1.6 percent for Arizona and 0.8 percent for Sonora. Over this time period, Sonora's crop acreage reached a high of 1.85 million acres in 1981 while Arizona also reached its peak in the same year at 1.35 million acres.

Even though Arizona harvested about 500,000 fewer acres in 1995 than Sonora, cash receipts from crops were similar for the two states. This is because Sonora had a larger percentage of its acreage planted to wheat and feed grain crops, which require fewer inputs than cotton and also yield lower gross returns per acre. Arizona's vegetable industry also yielded better returns than earlier years in 1995.

Figure 4.2c describes the irrigated areas of Arizona and Sonora. Arizona's acreage is found primarily in Central Arizona and along the Colorado River. Southern Sonora's Yaqui and Mayo valleys 950,000 acres of irrigated land account for the largest concentration of irrigated land in Sonora and the Arizona-Sonora Region. Irrigated acreage around Hermosillo and along the Colorado River are also noteworthy for Sonora.

There are substantial differences in the distributions of crop acreage both within Arizona and Sonora and between them, as described in figure 4.2d. In Arizona, the Cen-

MM Arizona-Sonora Agribusiness Study: Crop Sector

Figure 4.2c. Irrigated Land in Sonora and Arizona.

( I I

Colorado I River I

,,. .,,. I I

J

I -...

Northern Arizona

•

.. ,. . '

-... ,,

i I f ,_. 'I I J \ I I ' '

• • I - - .._ ✓- - ' \ •

• ,,""l I ~ ,.l • I • ... ,.._,. • l ,, ~

.,.4, :· \,1' \.. .. • ~!..••• ~ I y -ii"" I Southeastern

I I A~lzona

I Central Arizona \ I I I •-J', r '

✓ I

\ Sierra

l

\

Arizona-Sonora Agribusiness Study: Crop Sector ------------Figure 4.2d. Regional Crop Acreage for Arizona and Sonora, 1995.

23%

15%

f I I

Colorado I River I

I I I I

I I

,,,, Northern Arizona

0 100%

~--,✓--\

23% I Central Arizona,,.. l. ,.. ; ., ,.,,

I 3'¾ 1% \ \ 1 6% ~- 15% ..,, Southeastern

1 :!<·>·.·>·.·:-·.~-l% \/ I Arizona 119% I I : 16% :% 19%

I I .,

I 58% 56%.,.. - ...J

I

Sierra J'¾.28%

19% 2%

10% 2% 23%

15% 6% 17%

19%®17% 16% 10%

Source: Arizona Ag Statistics and Sonoran Research Team.

59%

~

• •

Legend

Wheat

Corn

Cotton

Forage

Vegetables

Non-citrus Fruit

Citrus Fruit

Other Crops

= 25,000 acres

Note: Other crops for Arizona includes non-citrus fruits.

Arizona-Sonora Agribusiness Study: Crop Sector

tral region has the largest overall acreage, over 50 percent of which is in cotton. Forage and wheat, with cotton, make up 80 percent of the Central region's acreage. The Colorado River region, while smaller than the Central region in total acreage (288,300 to 546,720) has a much higher percentage of acreage in citrus and vegetables, a fact reflected in much higher cash receipts per acre (total cash receipts similar to the central region despite the smaller acreage). Cajeme, Sonora's largest region, is similar to Arizona's central region in its distribution. Wheat replaces cotton as the primary crop, and corn replaces forage, but overall, field crops are 7 5 percent of the acreage. Navojoa, while quite a bit smaller, has similar percentages. Caborca and Hermosillo regions show a greater degree of diversity. Hermosillo, at 253,655 acres, very close to the size of Navojoa, has only 41 percent of its acreage in the four field crops. Importantly, "other crops" includes dry bean production in Sonora.

In, comparing the two states, Sonora has a larger overall number of acres (1,524,051 to 904,820). However, in some of the more specialized crops Arizona has a slight advantage. Arizona has more acreage in vegetables (99,400 to 83,779) and more in citrus (37,600 to 23,992).

Regional Competitiveness

The ability of the Arizona-Sonora region to effectively compete with the rest of the world is mainly determined by relative production costs, trade policies, and transportation costs. The competitive position of the Arizona-Sonora region for perishable products is evaluated in this section by looking at how production windows coincide with Los Angeles wholesale prices, an established reference market. Market windows are described by week for the calendar year in figure 4.2e by plotting the 1993-95 average price and 1980-95 price range. This shows the price fluctuations that occur in selected markets and gives a feel for what recent prices have been. Please note that the farm level price will be lower than the wholesale price since transportation, packaging, grading, and other service costs are not included in the farm price. Prices were deflated by the monthly Consumer Price Index so that all prices and costs shown are in 1995 US dollars.

Perishable commodities described in figure 4.2e are, broccoli, cauliflower, iceberg lettuce, leaf lettuce, red potatoes, tomatoes, watermelon, dry onions, cantaloupes, flame grapes, valencia oranges, and lemons. The price range given for all of these perishable commodities illustrates how prices can fluctuate greatly from one week to the next. Cost of Production (COP) estimates at the farm are also provided where available to give a feel for where grower production costs lie in relation to the market price. COP estimates given coincide with the harvest window for a crop and region. Counties or Municipalities that accounted for the largest acreage in each state were selected to represent COP for each state. Watermelons, red potatoes, and flame grapes are commodities where Sonora's cost of production and harvest window is contrasted with Arizona.

Panel G for watermelons portrays production windows for caborca and Maricopa that is largely complimentary in nature, although their is some harvest period overlap. Caborca's per pound COP is estimated to be below Maricopa's by almost 15 percent and Caborca has a much better harvest window. Average prices have been about double in the winter and early spring months compared to mid-summer, Arizona's peak harvest period.

•Arizo-· •na--.s.o.no•r•a•Agri1111111.·business-•' --S•tu•d•y•: •C•r•op_S.ecto-•r-----------------...i-Figure 4.2e. Weekly Los Angeles Wholesale Prices, Production Windows, and Cost of

Production (COP) Estimates for Selected Fruits and Vegetables by Location..

Ftit1~l!~l11~lg9~?$U>··•.• $/23 lb. carton

$30--.-----------------;---,

$25

$20

$15

$10

$5

$/25 lb. carton $30....--------------------,

$25

$20

$15

$10

$5

$0-h-~~~~~~~~~~~~~~~~~~-r-1

l 4 7 IO 13 16 19 22 25 28 31 34 37 40 43 46 49 52 l 4 7 IO 13 16 19 22 25 28 31 34 37 40 43 46 49 52

Week of Calendar Year Week of Calendar Year

Sources; LA Wholesale Pr1ces and University of AZ Vegetable Budgets. Sources; LA Wholesale Prices and University of AZ Vegetable Budgets.

1·.••.·.l?~t1el···().ilpebergt,ettuce •••·•.•· $/SO lb.carton

$50~-----4----------------, $45 $40 $35 $30 $25 $20 $15 $10~•.~,~~0.~0,~~~•1;,~ •. ·~

$5 $0,...:i...~~~:.......~~~>,.QJ~~~~~~IJA-l~.-r<

$/20 lb.

$35~-----...-------------,

$30

l 4 7 IO 13 16 19 22 25 28 31 34 37 40 43 46 49 52 4 7 IO 13 16 19 22 25 28 31 34 37 40 43 46 49 52

Week of Calendar Year Week of Calendar Year

Solll'CeSI LA Wholesale Pr1ces and Unlverslty of AZ Vegetable Budgets. Sources: LA Wholesale Prices and University of AZ Vegetable Budgets.

$/50 lb. sacks $35--.-----f"\--------------,

$30

$25

$20

$15

$10

$5

$0 l 4 7 IO l 3 l 6 l 9 22 25 28 3 l 34 37 40 43 46 49 52

Week of Calendar Year

$/20 lb. ftat

$50 naa:;--- • .-----------: ,;:1::;TI•

$45 / $40 $35 $30 $25 $20

$15 -1.c,11, •• .c,c.·•c

$10 $5 $0..:l-,..~~~~~~~~~~~~~..,...,...,...,. ........ Trl

4 7 IO 13 16 19 22 25 28 31 34 37 40 43 46 49 52


Sources, LA Wholesale Prices and University of AZ Vegetable Budgets and Sonora Researchers. Sources, LA Wholesale Prices and Sonoran Research Team.

Legend L • < I Price Range ( 1980-1995)

Flt•I Arizona-Sonora Agribusiness Study: Crop Sector

Figure 4.:2e. {Continued)

Panel G. · Waterrneloris $/lb.

$0.80-.---------------------,

$0.70

$0.60

$0.50

$0.40

$0.30

$0.20

$0.10

$0.00-+.~~~~~rr-,..,..,..,..,..,...,..,.,..,..,..,..,..,...,..,.,....,..,..,..,.TT"T..,..,..M"TT-r<-rl 1 4 7 10 13 16 19 22 25 28 313437 40 43 46 49 52


Sourcest LA Wholesale Prices, Unive,.,Jty of AZ Vegetable Budgets and Sonoran Research Team.

I Panel•L Cantaloupes.··

$/40 lb. carte

$100

$80

$60

$40

$20

r1,----iiiiiiii--::~---=~•

Sonora Harvest Windows

I 4 7 101316192225283134374043464952


Sources1 LA Wholesale Prices, University of AZ Vegetable Budgets and Sonoran P.esearch Team.

I f>anelK. Valencias $/38 lb. carton

$451!!!!.!!i!i!i!:i!,~a:_sj_~;;-~~wi;~-:;--7 $40 :µ..:,_;,._:,_;,._:,_;,._.:,,_;:._.,._,._..,._,._-"--"'...>.J'--.r----__ _

$35

$30

$25

$20

$15

$10

$5 $Q--+.,....,~~..,..,.,~~..,..,.,..,..,..~m~~~..,..,.,~~m.......-l

1 4 7101316192225283134374043464952


Sources, LA Wholesale Prices. University ol AZ Vegetable Budgets and Sonoran Research Team.

Panel 1-t Dty OhioM $/50 lbs.

$30--,----,=-1'---------------,

$25

$20

$15

$10

$5

$0-+.-rrm-.-r,~m..,.....n-,-..,..,.,..,..,..,..,..,..,..,....,...,...,..,.,rrT...-nrrT.,..,.,rrTTT-rl 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52


Source., LA Wholesale Prices and University of AZ Vegetable Budgets.

PanelJ. Ffarne Grape~ ·.·•.··I

$/32 lb. lugs.

$60-.-------------------,

$30

$20

$10

1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52


Sources, LA Wholesale Prices, University of AZ Vegetable Budgets and Sonora Ag Budgets.

Panel L. LernoM

1 4 7101316192225283134374043464952


Sources, LA Wholesale Prices. University of AZ Ag Statistics.

Legend D Price Range (1980-1995)

Arizona-Sonora Agribusiness StudiJ: Crop Sector Ill --------As described in panel E, Sonora's harvest window for red potatoes in Navojoa starts about 3 to 4 weeks before "early potatoes" in Maricopa County. Production costs are estimated to be essentially the same for both regions with per pound costs in Navojoa slightly higher. Differences in potato size and grade along with sorting, culls, and transportation costs are reasons why the cost of production for red potatoes appears to be almost half that of the L.A. wholesale price.

The table flame grape window and COP described in panel J is particularly interesting. Caborca's harvest window is about 2 to 3 weeks ahead of Maricopa and this makes a huge difference given the way prices start to plummet around week 19 or 20 (May 1 O to 15). from 1993 to 1995, wholesale flame grape prices have dropped from over $35/ lug to less than $20/lug in only a couple weeks. Since the estimated COP is slightly lower for Caborca than Maricopa, Caborca has had the advantage recently by being able to enter the market a couple of weeks sooner than Arizona.

Table 4.2a gives 1995 average yields for Arizona and Sonora for selected crops and presents a Sonora/ Arizona yield ratio. Arizona has higher yields than Sonora for all of the commodities shown below. Higher yield does not necessarily translate to lower unit costs though. Of the four different cost comparisons in table 4.2b between Arizona and Sonora, Sonora is estimated to have a lower unit cost of production for upland cotton, durum wheat, corn, and alfalfa. ttowever, we will note that discrepancies in procedures for obtaining cost of production estimates were found and the very low cost of producing alfalfa in Sonora was never resolved.

Table 4.2a. Average Crop Yields for Arizona and Sonora, 1995

Crop Units Arizona Sonora SO-AZ (per acre) Yield Yield Yield Ratio

Watermelon lbs. 23,600 23,207 98.33%

Valencia Oranges 1000 ctns. 744 595 79.98%

Alfalfa lbs. 17,000 13,388 78.76%

Upland Cotton lbs. 1,076 835 77.56%

Potatoes lbs. 28,000 21,555 76.98%

Durum Wheat lbs. 6,290 4,463 70.95%

Honeydews (Spring) lbs. 28,600 17,851 62.42%

Corn lbs. 10,780 4,581 42.49%

Note: Arizona yield figures for corn are for Cochise County, durum wheat and valencia oranges are for Yuma County, and other yields are for Maricopa County. Sonora yield figures are for durum wheat are for the Cajeme Municipality, upland cotton, potatoes, and corn are for the Navojoa Municipality, and other yields are for the Hermosillo Municipality.

lit• Arizona-Sonora Agribusiness Study: Crop Sector

Table 4.2b. Historical Arizona Prices and Cost of Production for Field Crops.

Average Arizona Cost of Production High Price Low Price Price Price (All Costs, 1995)

(1980-95) (1980-95) (1980-95) (1995) Arizona Sonora

Upland Cotton ($/lb.) 1.27 0.56 0.83 .71 0.79 0.57

Pima Cotton ($/lb.) 2.00 0.84 1.32 1.31 1.47 -Durum Wheat ($/US ton) 266.14 134.24 175.27 156.7 181.27 149.30

Barley ($/US ton) 238.98 114.18 153.14 122.9 170.16 -Corn ($/US ton) 257.64 106.66 147 .54 132.1 148.5 137.72

Alfalfa ($/US ton) 157.64 67.47 115.87 103 71.8 37.77

Note: Cost of production for corn are for Cochise County, Upland cotton and alfalfa are for Maricopa County, and Pinal County for all other. Source: Arizona Field Crop Budgets and Sonoran Research Team.

4.3 Trade Patterns and NAFfA

Foreign Trade Patterns

Mexico is the main Import source of winter vegetables for the US. In 1993, the year before NAFTA began, Mexico supplied 99 percent of eggplant imports, 96 percent of tomatoes, 94 percent of snap beans, 93 percent of squash, 90 percent of cucumbers, and 83 percent of bell peppers. The Impact of NAFTA on trade in these commodities is of great interest to US vegetable producers, US consumers, and Mexican producers. During the first three years of NAFTA, imports increased by 42 percent for bell peppers and 71 percent for tomatoes (Calvin and Lucier). Despite growth in imports, Mexico's share of US tomato imports fell slightly to 93 percent in 1996 as countries like Netherlands and Canada increased shipments of greenhouse/ hydroponic tomatoes to the US.

Comparative advantage is critical for understanding winter vegetable trade and it is the driving force behind trade in an economy with no trade barriers. Comparative advantage is determined by relative resource endowments and technological capacity which determines the economic efficiency of producing various commodities. Weather is also an important resource endowment for winter vegetable production. Winter vegetable crop production is concentrated in Florida and Sinaloa, Mexico with Sonora emerging as an important state for growing and shipping winter vegetables to the US.

Under NAFTA, all tariffs will be eliminated over a period of 15 years. Tariffs on winter vegetables were in general quite low even before NAFTA for many production windows (see Table 3.1 b). The US has two tariff rate quotas for tomatoes (quota varies by season) and quotas grow by a compounded 3 percent annual rate until the tariff is completely phased out.

US demand for fresh vegetables has increased since the early 1980s. At the same time, domestic production has not kept pace with demand for the last few years

Arizona-Sonora Agribusiness Study: Crop Sector '''' during the winter months, largely due to a series of adverse weather conditions. Imports, largely from Mexico, have allowed wholesalers and retailers to maintain their supply of fresh winter vegetables.

Although imports of most fresh vegetables from Mexico have increased during the last few years, the increase in tomato imports is the most dramatic. In 1994, the first year of NAITA, US imports of Mexican tomatoes totaled 376,034 metric tons. In 1995, US imports of Mexican tomatoes climbed by 58 percent and imports for 1996 were up 16 percent.

Although reduced tariffs due to NAITA helped increased US imports of Mexican vegetables, much of the increase can be attributed to factors unrelated to NAITA. The 1995 economic crisis and peso devaluation in Mexico have had a widespread impact on winter vegetable trade. The Mexican economic crisis had several short run impacts on Mexican producers. First, the Mexican domestic market contracted. Reduced domestic opportunities made the US a much more attractive and critical market. In addition, the devaluation of the peso made prices in the US more attractive to Mexican producers or conversely, Mexican vegetables became more attractively priced for US importers.

Adverse weather conditions in Florida and technological advancements in Mexico's vegetable production have also positively impacted vegetable trade between the countries. Adoption of new tomato varieties in Mexico has resulted in significant trade changes. In the last few years, Mexican tomato exporters in Sinaloa, Baja California and Sonora have successfully adopted new technology to produce "vine-ripe" extended shelf life (ESL) tomatoes. During the winter and spring, the Mexican vine-ripe tomatoes from Sinaloa-Sonora compete against Florida's mature green tomatoes. Current varieties of ESL tomatoes do not grow well in Florida because heavy rains cause the tomatoes to crack on the vine. An ESL vine-ripe tomato lasts a week longer in storage than a mature green, reducing waste and marketing costs. A vine-ripe tomato is bright red and firm which is a desirable factor in a marketplace that demands a high quality appearance of produce. The food service industry on the other hand prefers firmer mature green tomatoes for slicing. The market is becoming more segmented and Mexican and US tomatoes are not always perfect substitutes (Calvin and Lucier). But in the fresh-vegetable tomato market, Mexican tomatoes appear to be gaining an upper hand. Mexican tomatoes continue to erode away the market share of Florida tomatoes.

The US is one of the world's largest producers and consumers of fresh asparagus. In the past, fresh asparagus was consumed only when US production was available (Calvin and Cook). Now fresh asparagus is available year round, mainly due to an increase in imports as shown in figure 4.3a. In 1980, the US imported just 8 percent of fresh asparagus supply, but by 1996 that share increased to 40 percent. Mexico is the largest source of US imports. Asparagus is a labor intensive, high-value crop that is very attractive to countries with ample cheap labor.

Much of the US's asparagus is grown in Washington (42% in 1996), California (38%) and Michigan (15%). US asparagus production has declined steadily over the last seven years, due mostly to lower output in California while the production grew in Sonora. Sonora has an overlapping shipping season (January-March) with California.

'''' Arizona-Sonora Agribusiness Study: Crop Sector

Between 1989 and 1996, imports during January almost doubled, lowering earlyseason prices. Sonora is Mexico's leading producer of asparagus and most of Mexico's exports to the US are shipped through Sonora from December through early April.

Figure 4.3a. US Asparagus Production. Imports and Exports, 198'9-1996.

million lbs. 180 -r---- ... -_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-_-..=,....,

160

140

120

100

80

60

40

20

0 1989

~ Fresh Production

1990 1991 1992

Source: ERS/USDA.

• Imports OIID Exports

199.3 1994 1995 1996

Mexico's sizable asparagus shipments to the US occur, despite high tariffs. NAFTA should further improve Mexico's position as a source of US imports (Calvin and Cook). Before implementation of NAFTA, the US assessed a 25 percent tariff on fresh green asparagus imports from Mexico. Now the tariff schedule varies by the time of year. For the month of January, the tariff was reduced immediately in 1994 to 17.5 percent from 25 percent and is being phased out over 15 years. Similarly, tariffs for other months are being phased out. Even though other countries are vying for the US asparagus market, Mexico has a transportation advantage over other countries and will eventually firmly establish its status as a number one supplier of asparagus to the US.

Prospects for increased US trade with Mexico are perhaps brightest in horticultural and processed food products, particularly after economic growth resumes in Mexico. Although Canada currently accounts for three-quarters of US exports of fresh fruits and vegetables, future growth ls expected to be stronger in Mexico. As the Mexican

Arizona-Sonora Agribusiness Study: Crop Sector ii~i economy forges ahead with strong growth, US exports of high value products such as fresh fruits and vegetables, and snack foods are expected to increase. AccordIng to USDA, pet food exports to Mexico will probably more than double over the next decade.

Regional Trade

Production inputs account for the largest share of products that Arizona crop individuals export to Sonora. Seeds are the most common item exported by Arizona respondents and they range from specialty vegetable seeds (e.g., asparagus, radish, bunching onion) to common grain seeds (e.g., barley, wheat, and oats). Sonoran crop individuals interviewed indicated that they also import fertilizers, pesticides, herbicides, machinery, defoliants, and other similar materials from Arizona and the rest of the US. California supplies a large share of these inputs for the San Luis Rio Colorado region and Arizona could move into this market. Of the Sonoran crop producers interviewed, 39 percent obtain most of their production inputs from Mexico, 39 percent from Arizona, 6 percent from California, and 15 percent from other regions of the US. It is noteworthy that Arizona is suggested to be as strong an input supplier as Mexico for Sonora, and over six times as important as California. However, Arizona crop respondents also said that their exports to Sonora were generally 5 percent or less of their total business sales.

Sonora's importation of production inputs from Arizona is fairly well know, but Arizona also purchases production inputs and receives technical assistance from Sonora. Figure 4.3b describes the percentage of Arizona respondents by sector that have made these purchases from Sonora. In the last three years, 20 percent of all Arizona respondents (21 percent for crops) indicated that they have received production inputs or technical assistance from Sonora. This figure is up from 14 percent for the last 4 to 10 years. Most noteworthy is how the percentage of Arizona respondents purchasing production inputs from the rest of Mexico has decreased or been flat for all sectors while they have increased or remained constant with Sonora. Livestock has shown the most growth for Sonora, increasing from 17 to 27 percent, followed by the crop sectors increase of 15 to 21 percent.

Arizona crop producers have primarily grown or imported vegetables, fruit, and nut products from Sonora. Melons, squash, green peppers, grapes, and pecans (inshell) are among the most common items listed. These products grown or purchased were indicated to make up a higher percentage of Arizona crop producers' total business (around 10 percent on average) than production inputs and technical assistance (less than 5 percent) from Sonora.

Of the Sonoran crop producers interviewed that export abroad, 25 percent utilize an association or organization of producers as their broker for exporting abroad while the remaining 7 5 percent utilize a broker from either Arizona and/or California. Location of broker was split equal between Arizona and California based brokers. Export destinations included Japan, Canada, Spain, England, Algeria, and the Middle East.

Ill Arizona-Sonora Agribusiness Study: Crop Sector

Figure 4.3b. Survey Results: Arizona Respondents that have Purchased Production Inputs or Received Technical Assistance from Mexico in the

Percent of Arizona Respondents by Sector

Last 3 Years or 4 to 10 Years.

30%--.------------------------------------,

25%

20%

15%

10%

5%

0% C L FP F/M

• Last 3 Years

l¼J 4 to IO Years

0 C L FP F/M 0

INDUSTRY SECTOR: C=Crop, L=Livestock, FP=Food Processing, F/M=Flnance/Marketing, and O=Overall

JYAFT A Regulations and Legal Issues

With increased market interaction a foregone conclusion with the implementation of NAITA, the limitations of national government regulation will become more apparent. The two most common examples mentioned are the Perishable Agricultural Commodities Act (PACA) and USDA grading of meat products. In the US fruit and vegetable crop sector, PACA has widespread industry support. PACA was first passed in 1930 to support fair trade practices in the US fruit and vegetable industry. It enforces financial and legal contracts and maintains formal and informal avenues for resolution of contract related problems. PACA evolved as a result of the highly perishable nature of the products being traded. A process was needed that dealt with disputes while minimizing delays that could lead to complete loss of the product at issue. PACA, "by spelling out the responsibilities of all parties, enables the product to be marketed promptly while still protecting buyers' and sellers' rights in the event that a contract dispute occurs." (PACA fact finder, http://www.usda.gov/ams/fvpaca.htm)

A PACA license is the key to cooperation and proper resolution of disputes. A PACA license is required by federal law for almost anyone that deals in fresh or frozen fruits and vegetables. With the license suspended or revoked, a dealer in fresh or frozen

Arizona-Sonora Agribusiness Study: Crop Sector lit• fruits and vegetables is essentially unable to operate legally in the industry. A license from PACA protects members from a wide range of unfair trade practices including failure to pay and unreasonable rejection of product as well as giving priority to pro• duce suppliers under bankruptcy proceedings.

While Canada has a law to deal with produce disputes, Mexico has no similar statute. Many US produce growers see the PACA as a model for produce in Mexico. US produce growers believe that a PACA-like statute in Mexico is essential for exporting to Mexico (Waterfield).

The importance of a PACA-type agreement that extends into Mexico was quite strongly voiced by Arizona survey participants. In response to a question asking whether their level of trade with Mexico was lower as a result of no PACA, 33 percent of the Finance/ Marketing respondents answered in the affirmative as opposed to only 14 percent in the negative. Crop respondents said "no" by a 3 to 2 ratio. These results might seem to not support the conclusion unless one remembers that PACA is primarily concerned with the protection of suppliers and in the fruit and vegetable sectors, imports from Mexican suppliers are far greater than exports from American suppliers at the present. As the Mexican economy fully recovers from the peso devaluation, this could change and American exporters will desire the same kind of protections in their dealings with Mexico as they face in the US.

This conclusion is further supported by responses on other questions. In ranking risks (see # 19, Appendix C), payment defaults ranked number one for food processing and tied for number one by Finance/Marketing respondents. The importance of "legal agreements that offer enforcement of contracts," (see #36c, Appendix C) was ranked number one in importance for the crop sector, number two in food processing, and finance/ marketing sectors, and number two overall. Over 50 percent in every Arizona sector answered "Very Important" and overall 85 percent considered this important to some degree. Also, "Unified standards and grading," an issue related to PACA, ranked second with the crops sector and third overall in importance.

With regards to pesticide, herbicide, and fungicide use only 25, 18, and 16 percent of Arizona respondents, respectively, thought that more are used in Mexico than in the US. Hence, at least among the participants, there is no support to the popular belief that more agricultural chemicals are used in Mexico. This is an important finding espe• dally in light of the fact that the survey participants are familiar with Sonora and Mexico.

4.4 Cluster Analysis

This section summarizes the strengths and weaknesses for the region's crop sector along with potential opportunities and threats to growth. Based on prior discussion in this chapter, tables 4.4a and 4.4b highlight the situation for Arizona and Sonora, respectively.

The demand for fresh non-citrus fruits, vegetable and nuts is very strong in the US. As the Mexican economy becomes stronger, the demand for these high-value products will increase. Thus, the market outlook for Arizona and Sonora's vegetable and fruit indus-

Iliff Arizona-Sonora Agribusiness Study: Crop Sector

tries is optimistic. Joint venture opportunities for labor intensive crops like asparagus production in Sonora are likely to exist for Arizona. Sonora will also need to purchase equipment, seeds, and fertilizers from Arizona or other US businesses. The developed distribution network center in Nogales for winter produce is an asset for the region. The region will be challenged to keep the distribution services provided by Nogales as NAFTA is further implemented. Trucks that are loaded by the produce fields in Sinaloa and other regions south of Sonora can head straight for their destination in Canada or the US with no reason to stop.

Although the harvest windows are similar for many fruit and vegetable crops that both Arizona and Sonora produce, opportunities do exist for extending the season. For example, the harvest window for watermelons can be almost doubled for both Arizona and Sonora by combining harvest windows. Similarly, the harvest window for cantaloupes can be almost doubled for both states by combining harvest windows. Some individuals in Arizona and Sonora are already taking advantage of these complementary windows but opportunities for expansion exist.

Inadequate transportation, cooling, post-harvest storage, and shipping facilities in Sonora restrict the Region's ability to compete more effectively abroad. Other weaknesses and threats for the crop sector of Sonora and Arizona include decreasing real prices for most traditional crops, financial difficulties, insect and pest outbreaks, food safety scares, and the inability to enhance and develop new marketing channels. A more stable free trade policy combined with a legal system of protecting property rights would likely lead to more joint-ventures, strategic alliances, collaborative research, and private investment that would overcome many of these weaknesses and threats for the Region.


Table 4.4a Assessment of Crop Sector for Arizona

Strengths Strong US consumer demand for non-citrus fresh fruits, vegetables, and nuts. Cutting edge of technology adoption. Developed distribution network center in Nogales. Proven ability to grow high quality produce, durum wheat, and cotton. Main supplier of winter lettuce for the US. Strong demand for nursery products.

Weaknesses Diminishing farm program payments for traditional program crops. Decreasing real price of traditional crops. Increasing cost and scarcity of water for some agricultural regions. Decreasing share of farm value in consumer food expenditures. Difficulty in obtaining financing with the elimination of target price supports.

Opportunities Potential to grow in agribusiness activities that expand the harvest season for some crops by combining the harvest windows of the two states. Uninhibited ability to rotate crops and plant for the market with new farm bill. Access to a deep water port in Guaymas with potentially quicker transportation and lower cost in the midst of a growing global economy. Joint venture opportunities for labor intensive crops in Mexico.

Threats Phytosanitary trade barriers for trading with Mexico. Insect outbreaks that damage yields and quality reputation in the marketplace. Food safety scares. Urban encroachment and associated restrictions on chemical and fertilizer use. Lack of a PACA type system in Mexico that will continue to inhibit the expansion of produce exports to Mexico Increased competition from Mexican imports with a fully implemented NAFTA for some crops.

MIN

lt{•I Arizona-Sonora Agribusiness Study: Crop Sector

Table 4.4b Assessment of Crop Sector for Sonora

Strengths Low labor costs. Strong foreign demand for main export-oriented crops (asparagus, grapes, green onion, melons, zucchini, watermelon). Strong linkages between northern Sonoran growers and international brokers. Good access to high technology for crop production. Closer location to US markets than most other Mexican regions. Favorable natural environment for warm season vegetables and fruits. High level of engineering expertise for technical work. Specialized workers for horticultural crops. Increasing foreign demand for Sonoran products

Weaknesses Lack of strategic planning for short and long term horizons. Excessive bureaucracy and regressive tax policy. High indebtedness. High interest rates and selective credit. Lack of producer trust with crop insurance companies. Poor information on new markets and alternative crops. Marketing channels are not well developed in southern Sonora. Weak integration between farmers and research centers. Not enough consultant firms in marketing, planning, technical and legal issues. Post-harvest storage and shipping facilities are inadequate. Obsolete pumping equipment in areas using wells. Health and antidumping export barriers. Problems with "white flies" in cotton and horticultural crops in northern Sonora. Salinity in the coastal area of Sonora.

Opportunities Access to Arizona's market infrastructure to reach new markets. Integration opportunities between crop and food processing sectors in basic grains, oilseeds and vegetables. Duty free access to import inputs and technology. Strategic alliances to access new technology and credit sources. Japanese and American distributors are willing to establish joint-ventures with domestic farmers. Growth in international demand for organic products, and potential in the Sierra region to cultivate such crops. New irrigated agriculture in the Fuerte-Mayo region with joint-venture opportunities. Amendments to Article 27 (privatizing ejido lands) that will create incentives for attracting private investment. Strategic alliances to develop niche markets in Mexico and Central America.


Threats High debt levels leading to bankruptcy. Market saturation and high price variability for some crops. No strategic alliances developed with US brokers. Lack of continuity with agricultural policies. Increasing imports for basic grains and oilseeds due to trade liberalization. Strong dependency from a single supplier for inputs. Insect and pest outbreaks (white fly, etc.). USDA delaying the health status of Sonora as free of karnal bunt for durum wheat.

4.5 References

lt1•

Brooks, Laura. "Mexico Finds Ripe Market for Tomatoes." Arizona Daily Star, May 12, 1997.

Calvin, Linda, and Roberta Cook. "Exporter Target U.S. Asparagus Market." Agricultural Outlook, United States Department of Agriculture, Economic Research Service, Washington, D.C. April 1997: 20-23.

Calvin, Linda, and Gary Lucier. "U.S. Imports of Mexican Winter Vegetable Under NAFTA." Vegetables and Specialties Outlook and Situation S&O/VGS-271, United States Department of Agriculture, Economic Research Service, Washington, D.C. April 1997: 24-29.

Thompson, Gary D., and Paul N. Wilson. "Ejido Reforms in Mexico: Conceptual Issues and Potential Outcomes." Land Economics, November 1994: 448-465.

United States Department of Agriculture. "NAFTA: Situation and Outlook Series." International Agricultural and Trade Reports, Economic Research Service. WRS-95-2. May 1995.

United States Department of Agriculture. "NAFTA: Situation and Outlook Series." International Agricultural and Trade Repo,ts, Economic Research Service. WRS-96-6. September 1996.

Waterfield, Larry. "Californians Voice NAFTA Concerns." The Packer, June 2, 1997.

Yates, P. L. Mexico's Agricultural Dilemma. Tucson: The University of Arizona Press, 1991.

Young Edwin C., and Paul C. Westcott. "1996 Farm Act Impacts: An Early Assessment." Agricultural Outlook, August 1996: 22-25.

ittf Arizona-Sonora Agribusiness Study: Crop Sector

Arizona-Sonora Agribusiness Study: Livestock 111!11 ---------

Chapter S

Livestock

5.1 Overview of Arizona and Sonora's Livestock Industries

The livestock industries of Arizona and Sonora share similar roots, with Native Americans grazing small pastoral herds of sheep and goats. Origins of cattle ranching for both states can be traced back to 16th century Spanish explorations. The history of southern Arizona is very similar to that of Sonora. A few Spanish Land Grants were made in southern Arizona in the San Pedro, San Rafael, and Santa Cruz valleys before Mexico gained its independence in 1821. By the middle 1800s these Mexican ranchers were driven off by Apaches. Not until after the Civil War when the Apaches were forced onto reservations did large ranches return to the region. In the 1880s several large ranches were started with outside capital and they usually controlled their grazing territory with access to water (Sheridan).

Today the livestock industries of Sonora and Arizona share some similarities in breeding stock and range production practices, but overall the two industries are quite different. Most of the differences are due to "border factors." Feed grain prices are much cheaper in the US than Mexico. About 7 5 percent of the US corn utilized domestically is used for animal feed, whereas in Mexico 75 percent of its corn is utilized for human consumption. As a result, Sonora has been an important source of feeder cattle for Arizona feedlots. Results from our questionnaire suggest that roughly 25 percent originate from Sonora. Sonora's pork industry on the other hand is more developed than in Arizona. Pork production in Sonora has been developed around cheaper slaughter and processing costs for hogs. Labor is much cheaper in Sonora than Arizona with current agricultural wages around $.3/day in Sonora. The next section describes the importance of livestock for the two states.

Importance of Sector for Arizona and Sonora

As described earlier, the livestock industry is somewhat less important in economic value relative to the crop sector for both Arizona and Sonora, but the livestock sector is arguably more important to the Region's resource base and the environment. The range livestock industry utilizes over 92 and 8.3 percent of the land base in Arizona and

Iii Arizona-Sonora Agribusiness Study: Livestock

Sonora, respectively. Thus, issues related to water quality, endangered species, environmental amenities, recreation, and other quality of life factors are closely tied to range livestock production. Furthermore, Federal and State grazing permits account for over 85 percent of Arizona's grazing land outside of Indian reservations (Mayes and Archer). Political pressures have played a role determining how this land base should be utilized and most anticipate that the public's role will increase more in the future.

Livestock revenues received for the Region and their average annual percentage change from 1980 to 1995 are described in figures 5.1 a and 5.1 b. On and annual average, Sonora's total revenues have increased slightly at 0. 7 percent whereas they have declined by 3.4 percent for Arizona. Cattle and calf sales have declined by an annual average of 6.1 percent for Arizona whereas they have increased slightly for Sonora at 0.9 percent. Poultry production in Sonora experienced the largest decline for the region, decreasing by an average 6.6 percent every year. Dairy products from Arizona have shown the most growth (7 .4%) followed by pork production in Sonora (5.5%).

For the five years from 1991 to 1995, livestock accounted for 42.0 percent of the combined value of livestock and crop revenues in Sonora. Cash receipts for Arizona livestock exceeded crops until the late 1970s, when crop receipts began to consistently exceed the value of livestock sales. Cash receipts from livestock and livestock products averaged for 43. 9 percent of Arizona's production agriculture sales from 1991 to 1995 (Arizona Agricultural Statistics).

Figure 5.la. Real Cash Receipts for Arizona Livestock. 198'0-1995.

1995 Billion dollars

$1.6---------------------~

$1.4

$1.2 I Total (-3.8%) I

$1.0

$0.8.-, ......... ~

Dairy Products (7 .4%)

$0.6 J-----------------'

$0.4 ------ 2 .. C I ______ Cattle u aves (-6. 1 %) $0.2-'---------------------1

$0.o------.---.......-------- .......... -----.-....--.....-----1 1980 1982 1984 1986 1988 1990 1992 1994

Source: Arizona Ag Statistics.

Arizona-Sonora Agribusiness Study: Livestock II ---------Figure S.lb. Real Cash Receipts for Sonora Livestock. 198'0-1995.

1995 Billion dollars

$1.6-r-----------------------,

$1.4

$1.2

$1.0

$0.8

$0.6

$0.4

$0.2-+-----

I Total (0.7%) I

$0. 0-+-----.---.----.---,--.----,--.----,..-----,---.----,----,.-----,-----,---4 1980 1982 1984 1986 1988 1990 1992 1994

Source: Euboracion Propia en base a datos de SAGAR.

f'iational Perspective

The total cattle and calf inventory for Arizona in 1996 at 840,000 head is only 0.8 percent of the US inventory. The hog and poultry industries in Arizona are even smaller, accounting for 0.2 and less than 0.1 percent of total US numbers, respectively. Arizona's dairy numbers are growing, bucking the US inventory trend. The 120,000 milk cows in Arizona account for 1.3 and 1. 6 percent of the milk cows and production for the US, respectively (Oct.-Dec. 1996 estimate). Although the sheep and goat sectors for Arizona outside the Navajo Reservation are relatively small, these sectors account for a larger percentage of US production than the other livestock sectors. The estimated 135,000 sheep in Arizona for 1996 by Arizona Agricultural Statistics account for 1.6 percent of US production. However, this number does not include sheep on Arizona's reservations. There are estimates of over 200,000 sheep on Arizona tribal lands (Ruyle). Arizona's estimated 80,000 angora goats make up 5.6 percent of US's inventory. This estimate also doesn't include goats on Arizona reservations. Poultry production for meat does not exist in Arizona and swine production is relatively small with a concentration of production in the Holbrook area accounting for most of the state's production.

Sonora has a relatively larger livestock sector in both absolute numbers and percent of national production than Arizona. Sonora's inventory of beef cattle in 1994 was 1.6 million head and accounts for about 5 percent of Mexico's estimated 27 to 31 million total cattle numbers. Pork production is also very important to Sonora. In 1995, Sonora

iii Arizona-Sonora Agribusiness Study: Livestock

had 2.1 million hogs that produced 1.3. 7 percent of their national production. Sonora's poultry industry produces 12. l and .3 percent of Mexico's egg and poultry for meat, respectively. Sonora's dairy industry is quite small and produced 157 million lbs. of milk in 199.3, 8 percent of Arizona's production level. Sonora's feedlot industry has declined from over 600,000 head in 1990 to around .300,000 in 1995.


Other than livestock emergency assistance, and export market promotion programs dairy and sheep are the only livestock sectors in Arizona that have had explicit government farm programs. But indirectly, all livestock sectors have been affected by farm programs through crop subsidies, conservation programs, federal grazing permits, and other farm programs. Farm program payments are currently called "transition payments" since they are scheduled for complete elimination in 2002. Farm payments were partially decoupled from production in the 1990 Farm Bill with the introduction of flex acreage and entirely decoupled in the 1996 Farm Act.

The 1 996 Farm Act brought about three major changes to the dairy program. First, the minimum support price for milk declines from $10 . .35 in 1996 to $9.90 per cwt. in 1999. Milk price supports during this period will rely on government purchases of nonfat dry milk, cheese, and butter. Second, production assessments ended in April 1996. Assessments provided refunds to qualified producers who did not increase milk marketings from the previous year. The third major change involved the restructuring of Federal milk marketing orders. The .32 milk marketing orders will be reduced to just 10-14 orders, with one reserved for California. Milk marketing orders specify minimum prices and conditions under which regulated milk handlers must operate within a specified geographic area. All producers receive a minimum price, with adjustments for butterfat and farm location if specified, that is a weighted average of all the milk sold for different "classes" or uses in the region.

Government payments for wool subsidies in Arizona averaged $1.86 million from 1985-1989 and were $1. 79 million in 1995. The market value of all wool production was $589,000 in 1995. Thus, "wool act" payments were worth .3 times more than the market value they received from wool sales. However, wool makes up less than 8 percent of the revenue received from sheep. Most comes from the sale of lambs and ewes.

Livestock programs for Sonora have been concentrated with export and import programs and regulations. These issues are discussed later in the trade patterns and NAFTA section.

5.2 Production and Market Structure

This section describes the production structure and market environment for the primary livestock sectors of Arizona and Sonora. Trends in livestock inventories, number of operations, size, and consumption patterns are discussed for the ranching, feedlot, dairy, pork, "other" Industries.

Arizona-Sonora Agribusiness Stud1.:3: Livestock 11!11!1 ---------Structure of Production

Ranching Industry

Production resources for Arizona and Sonora's ranching industry can be most easily compared and summarized by looking at their respective livestock inventories. Figure 5.2a graphically portrays cattle inventory numbers for Arizona from 1920 to 1995. The sheep Industry in Arizona is relatively small, except on the Navajo Reservation. Arizona Agricultural Statistic numbers suggest that around 5 percent of the forage in Arizona is utilized by sheep.

The number of cattle on Arizona's rangeland has declined since 1920 when an estimated 819,000 beef cows were on the range. After dropping from this peak in 1920 to only 360,000 beef cows in 1929, numbers increased sharply to 510,000 by 1937. Since then, numbers have steadily trended downward by about 4,500 head or 1 per-

Figure S.2a. January Cattle Inventory Numbers for Arizona, 1920-95.

(1,000 Head) I,600---------------------------------,

1,400

1,200

1,000

800

400

200

0 1920192519301935194019451950195519601965197019751980198519901995

Jan, Inventory Numbers ~ Dairy Cattle

• Steers & Other Heifers

Source: Arizona Agricultural Statistics

Year

[Il Beef Heifers • Bulls ~ BeefCows

~ Above Combined ltd Calves < 500


cent annually, to the current beef cow herd of 249,000 reported for 1995. Whether good or bad, much of this decline can be attributed to fewer animal units allowed on grazing permits. From 1985 to 1991, Fowler et al. reports that the number of animal units permitted for grazing on all federal lands has declined about .3 percent annually. State, private, and federal lands make up .3.3.4, 9.5, and 57 .1 percent respectively, of the grazing Animal Unit Months (AUMs) in Arizona (Mayes and Archer).

Fowler et al. estimates that slightly over 70 percent of the animal units on Arizona's ranches are made of cow-calf units with the balance from yearlings (generally > 550 lbs., weaned from the cow, and more than a year old). Thus, Arizona ranches are predominantly a cow-calf industry and receive the bulk of their ranch income from selling calves after they are weaned from the cow. But it is not uncommon to see some ranchers keeping their calves and selling them as yearlings weighing 550 to 7 50 lbs.

Reflecting a predominant desert climate and terrain, the overall productivity of Arizona's rangeland is relatively low. Mayes and Archer report that 45.6, 42.6, and 11. 7 percent of Arizona's ranches have a carrying capacity of< 6, 7-12, and >1.3 Animal Unit Years (AUYs) per section (640 acres), respectively. About one half of Arizona's ranchers have less than 7 AUYs/section carrying capacity.

Krause reports that 52 percent of the beef cows in the US reside in herds with fewer than 100 head. He also notes that most studies suggest that at least 100 cows are needed to achieve most of the economies of size associated with beef production. The primary reason for so many small herds is tied to the fragmented nature of US pasture and hay acreage. Much land is not suitable for growing crops due to slope, brush, seepage, etc. and a portion of an operators cropland is often rotated to hay crops. However, this size structure is not the same for Arizona's beef production. In 1982, Mayes and Archer found that only 9.2 percent of Arizona's beef cow production occurs on ranches less than 100 animal units. Production on small ranches is probably less now than in 1982 by making inferences from the number of beef cow operations by size group as reported in the Arizona Agricultural Statistics. In general, the number of ranches in all size categories have declined, reflecting larger units within each size category and a decline in beef cow numbers for Arizona. The number of beef cow operations in Arizona totaled 2,500 in 1995 with 1,500 having less than 50 head.

The production structure of Sonora's livestock industry is quite diverse with numerous ranching establishments. For 1991, Sonora was estimated to have 28,98.3 ranches (Anuario Estadistico del Estado De Sonora, Ed. 1996), of which about 70 percent raise only beef. The "Sierra" region produces 59 percent of Sonora's beef cattle. Following In descending order are the regions of Cajeme ( 11.8%), Navojoa (8.6%), Caborca (8.2%), Hermosillo (7.2%), and Guaymas (5.2%). In contrast to Arizona, where virtually all grazing is on native rangelands, slightly over half of Sonora's ranches utilize only pastures that have been planted as crop forage for their livestock. Ranches in Sonora are relatively smaller with .35 percent less than 1.3 acres in size. Ejidos account for a relatively larger share (70%) of these small units.

Feedlot Industry

The feedlot industry of Sonora has a wide variety of size in production units. Some have a capacity to feed 40,000 head with .3 to 4 "cycles per year" and some smaller units can

Arizona-Sonora Agribusiness Study: Livestock II -------------only feed a few hundred head with I or 2 cycles during the year. The investment infrastructure in facilities and equipment varies a lot from one feedlot to the next. Some have the capacity to process hundreds of tons of feed every day and keep a strong flow of production while others have poor facilities and equipment. The facilities and equipment are dependent on the target product. Feedlots which are more organized and capital intensive are able to produce US type beef cuts for domestic shipment to restaurants and high end consumers.

Though usually no more than 30 percent of Sonora's feeding capacity is utilized, they are estimated at having a current feeding capacity of around 156,000 head, down from a capacity of 180,000 in 1990. Although feeding capacity and animals on feed have declined, the number of feedlots in Sonora has increased from 45 in 1982 to over 60 today. Arizona is reported as having IO feedlots in 1995 (AZ Ag. Statistics) and feeding 380,000 head for the year.

In the early 1930s Arizona had about 80,000 head of cattle on feed during January. The feeding industry in Arizona continued to grow until it reached a peak of 624,000 in 197 3. The industry averaged over half a million head in the early 1970s. Since this era, cattle on feed numbers have declined by about 15,000 head/year to the current inventory level of around 250,000 head. Reasons for the steady decline of cattle on feed numbers in Arizona vary from tax incentives and speculation to water costs and local f eedgrain prices. Most of the US feedlot and packer industry is concentrated in the Texas and Oklahoma panhandle region. This area has a mild climate and is fairly close to the corn belt, giving this region a competitive edge on the "cost of gain." Also, fed prices are slightly higher there due to the close proximity of major packers in the area.

Sonoran feeder steers are an important link to Arizona's feedlot industry. Results of our questionnaire indicate that approximately 25 percent of Arizona's feeder cattle originate from the state of Sonora, as shown in figure 5.2b. Of the six feedlots described, all have

Figure 5.2b. Surve'J Results: Percent of Feeder Cattle in Arizona Feedlots that have Originated from Sonora 5 Years Ago and Last 2 Years.

% of Sonoran Feeders In Arizona Feedlots

90%-.------------------------.

80%

70%

60%

50%

40%

30%

20%

10%

0%

~ Average

23.33%

23.83%

• 5 Years Ago

~ Last 2 Years

Feedlot Operator Responses


Figure S.2c. Survey Results: Performance of Sonoran Feeders in Arizona Feedlots.

% of AZ Feedlot and Other Livestock

Individuals

60%

50%

40%

.30%

20%

10%

0% 0%

Better

• ~

Feedlot Operators

Other Livestock Individuals

0%

Don't Know

purchased Sonoran feeders in the last 2 years. Four of these feedlots note that they have utilized more Sonoran feeders in the last 2 years than they did 5 years ago. The percentage of feeders fed in Arizona feedlots for the last 2 years varies from 2 to 65 percent for these six feedlots.

As shown in figure 5.2c, the performance of Sonoran feeders relative to Arizona feeders is rated as essentially the same by Arizona feedlots and worse by other individuals involved with livestock production. Of these individuals that had an opinion, one-half felt that Sonora's feeders perform worse than feeders raised in Arizona while the other half felt that performance was about the same. Fifty percent of the "other livestock individuals" didn't know how feeders from Arizona perform relative to Sonora.

Da.Jry Industry

In contrast to livestock numbers for beef cattle, dairy numbers have been steadily increasing in Arizona. Since 1980, dairy cattle numbers have increased .3.1 percent annually or .3,250 head/year. The January 1995 inventory of total dairy animals was at 1.37,000 head with 11.3,000 milk cows. Average milk production per cow for Arizona of 19,561 lbs. is close to the highest production level in the country and far above the US average of 16,450 lbs. Arizona's increasing population and the ability to competitively produce cheese are the two largest factors for the increase in dairy numbers. Arizona's climate and large dairies are an advantage for keeping tabs on quality factors (e.g. somatic cell count) that help keep cheese production costs competitive. Given the solid demand for dairy products and the continued population growth, Arizona's

•Ar-izo-na•-•S•o•n•o•ra•Agri-•'•busin-·-es•s•S•tu-d•y•: •L•iv•e•sto-c•k---------------------

dairy industry will undoubtedly grow. A "propensity to produce milk index," based on relative production and prices by state ranked Arizona second only to New Mexico (Blaney, Miller, and Stillman). The biggest adjustment for Arizona dairies will be in dealing with more deregulation of the milk industry and diminishing price supports.

Sonora's dairy industry has been very irregular in production. Most of the ups and downs have been attributed to political forces that make incentives for importing milk from other countries.

Pork Industry

The pork industry in Sonora employs 3,804 workers and exports to the Western US, Japan, and Southeast Asia. Sonora's pork industry has the capacity to slaughter about 148,000 pigs in a year. For 1996, the capacity utilized was 125,701, down from 139,000 in 1995. Given that the number of hogs in Sonora totaled 1.3 million in 1995 (Anuario Estadistico del Estado De Sonora), most of Sonora's hogs are slaughtered outside their region even though they have slaughter capacity not utilized.

There are 160 hog operations in Sonora with the regions of Hermosillo, Navojoa, Cajeme and Huatabampo accounting for 35.8, 33.4, 21. 7 and 3.1 percent of production in 1995, respectively. In 1992, Sonora exported 2,600 metric tons of pork with a total value of $13 million (US) dollars. Four years later, 7,600 metric tons were exported for a total of $25 million dollars. One very large company, Kowi, accounted for 55 percent of the total exports in 1995. Arizona's pork production is concentrated with Navajo county producing over 85 percent of the state's production.

Other Industries

As mentioned earlier, Sonora's poultry industry is significant, producing 12.1 and 3 percent of Mexico's egg and poultry for meat, respectively. Although relatively small from a state perspective, goats and sheep are important to the livelihood of many ejido ranches in Sonora and Native American producers in Arizona. Another industry that has shown significant growth for both states in recent years is the ratite industry. Many are finding Mexico, including Sonora, to be an attractive location for processing ratite hides and other products while still having easy access to export their products abroad.

Market Environment

Total meat consumption per person on a retail weight basis has been increasing in the US at 0.5 percent annually as shown in figure 5.2d. In 1995 beef made up 36.8 percent of US consumer's meat purchases totaling 98.2 lbs./person. Although beef's share has been declining, it still comprises the largest share of meat in the US consumer's diet. In contrast, poultry has seen significant consumption increases in recent years. These same trends are felt to be similar for Sonora except for pork.

-~it·I Arizona-Sonora Agribusiness Study: Livestock

Figure 5.2d. US Per Capita Meat Consumption, 198'0-95.

lbs,/person (boneless retail Avg. Annual weight equivalent)

200.--------------------------,

180

160

140

120 ~"''""·

100 -.:;·(X.Yv'v-c·,z,',<.',z';<:x-xx-Y-->v'-C·-c·,<.',z',,(){_'X'XX-Yvv'v·v·-c,c-,:::-,:::-xxxx0'0v'v-C,:::-,:::-,:::-xx->.

80 :::x·.x.:x,y;y,:;..(;--,(',<';<'X'X.X.>',)';),'.';..(>,(:--,<',(';('XX.X.Y,);');·)-..(~..(~,(',(',('X'XX.1/,).';).',;,·;..(',(',('X'XX.>;:

60

40

20

0 1980 1983 1986

Source: Food Consumption Prices and Expenditures.

1989 1992 1995

%Change Total 0.5%

Fish 1.3%

Turkey 3.9%

Chicken 2. 9%

Lamb &. - t .2% Mutton

Pork -0.4%

Beef -0.8%

Pork consumption in Sonora increased from 21.3 lbs. in 1990 to 23. l lbs. in 1991. However, consumption dipped down in 1993 to 22.4 lbs. per person. In the US, the retail weight of both chicken and turkey consumption surpassed beef for the first time ever in 1993. Several explanations have been offered as to why US consumers have been consuming more "white meat" and less beef. Real or perceived health factors related to saturated fats and the risk of heart disease have been blamed for the decline in US red meat consumption.

A factor that has received much less media attention but has been very real is the relative price of beef to chicken. As shown in figure 5.2e, the price of beef divided by the price of chicken has been steadily increasing while the relative price of beef to pork has been stable. Most poultry production comes from "factory farms• that produce a very similar product by using the same genetically selected chicks and feed rations. These inputs are supplied or specified by a handful of industry giants. Whether good or bad, "factory farms" have decreased the relative cost of producing poultry to other meats and they have provided the means for supplying a standardized product with relatively good quality control.

Another factor has been the number of "convenience" products available for poultry in the supermarket compared to beef. An increase in the number of single households and households with both couples working has increased the demand for easy to prepare and convenience oriented products in the US.

Livestock inventories in the US are notorious for having a cattle cycle that is generally 9 to 11 years long as shown in figure 5.2f. Mexico's cattle inventories follow a pattern very similar to that of the US. Numbers typically peak near the middle of the decade around a trend line. From 1930 to 197 5 total US cattle numbers more than doubled going from 61

Arizona-Sonora Agribusiness Study: Livestock

Figure S.2e. Selected US Retail Price Ratios, 1960-8'S.

Annual Retail Price Ratios

3.5-.-------------------------, 3 Beef/Chicken Price Ratio~

2.5 Ttend

2

1.5

1

0.5 Beef/Pork Price Ratio

0 1960 1965 1970 1975 1980 1985 1990 1995

Source: USDA / AMS.

Figure S.2f. US Cattle Numbers and Arizona Calf Prices.

1,000 head ( 1995 dollars) $/cwt. 160,000----------------------------,-

Equivalent Inventory (using

140,000

120,000

100,000

80,000

60,000

40,000

20,000

Total U.S. Cattle Inventory (Actual)

~

AZ Calf Prices~ ( 1995 dollars)

197 4-197 6 avg. slaughter weights for a base period)

J

$190

$170

$150

$130

$110

$90

$70

0-+--.....---,------,,------,-----,----,--...--....--.-----.---.----,--.....,....._$50 19.30 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995

Source: USDA/NASS.


to 1.32 million head. Since 1975 livestock numbers have dropped to around 103 million head, but heavier slaughter weights make an equivalent inventory of 121 million head. In addition to heavier slaughter weights, beef production per cow has also increased with a 72 percent decrease in the slaughter of calves since 1970 and an increase in feeder imports. The influx of exotic crosses and hybrids (e.g., Charlois, Simmental, and Limousine) with traditional straight English breeds is the main reason for heavier slaughter weights.

Other than cull range livestock, virtually all beef in the US has been fattened on a grain ration. Whereas, many animals slaughtered in Mexico (particularly central and southern regions) have not been fed a concentrated grain ration and are slaughtered as "grass fat." As a result, US consumers have acquired a taste for grain fed beef while Mexican consumers are most accustomed to grass fed beef. Although grass fed beef is generally leaner, differences in taste go far beyond fat content and tenderness. These differences are very important to recognize before trying to pursue a unified system of grades and standards. Currently, the market for "higher quality" grain fed cuts in Mexico is limited to tourist areas and affluent consumers. However, Mexican consumers will more than likely switch to purchasing higher quality grain fed beef cuts as incomes increase.

As shown in figure 5.2f, calf prices do indeed move in the opposite direction with cattle numbers. But calf prices are also sensitive to the price of corn, the primary feed grain. In particular, the price differential between light (300-399 lbs.) and heavy (700-799 lbs.) feeder calves is sensitive to the price of corn. Figure 5.2g illustrates how light calves

Figure S.2g. Relationship Between Corn and Arizona Feeder Prices.

$/cwt. $/bu. of corn

$140 $7.50 - AZ Steers .300-.399 lbs. $7.00 $120 AZ Steers 700-799 lbs. $6.50 - Omaha Corn Price #2 $6.00 $100 $5.50

$80 $5.00

$4.50

$60 $4.00 $3.50

$40 $3.00 $2.50

$20 $2.00 $1.50

$0 $1.00

Source: Weekly Nominal Prices from Livestock Marketing Information Center and Cattle-Fax.

Arizona-Sonora Agribusiness Study: Livestock liii generally receive a higher price per cwt. than heavier calves because the "cost of gain" is less than the fed or finished price. But when the price of corn climbs like it did in 1995, the price premium for light calves declined to the point where light calves were actually cheaper than heavier calves in October 1995. Grass was very short supply during this period as well with drought conditions in northern Mexico, Arizona, and several other southern US states. Since Sonora primarily sells feeder cattle to Arizona, pasture availability and the cost of feedlot gain greatly influence the net price Sonoran ranchers receive for their feeders.

5.3 Trade Patterns and NAFTA

This section describes national and regional trade in the context of NAFfA. Regulations and legal considerations related to trade are discussed. Questionnaire results are relied on to describe regional trade and highlight legal issues and concerns surrounding livestock trade.

JVational Trade

NAFfA did not directly influence live cattle trade with Mexico since the only trade restrictions that applied prior to NAFfA and after 1988 are health requirements by APttlS that are still in place. Commercialization of beef and beef product trade reform was very important to Sonora under President Salinas. In October of 1988, export quotas were eliminated for Sonora with the liberalization of permits. Underlying objectives of this move were to increase government revenues by placing a tariff on cows and Increase the supply of beef for domestic consumption. The tariff was 20 percent for cows weighing less than 280 kilos (61 7 lbs.) and 25 percent for cows more than 280 kilos. Also, the government set a minimum price of $.300 in order to export a cow.

Figure 5 . .3a shows US and Mexican trade flows for beef product exports to Mexico and live animals traded. Prior to 1988, the export quota had the effect of bunching feeder imports from Mexico during December and January. Trade restrictions on exporting beef products to Mexico were relaxed some in 1987 and continued to be reduced until 1991 when all tariffs on meat products were finally eliminated except for some variety meats. However, in November of 1992 Mexico reinstated tariffs on chilled and frozen beef exports going to Mexico. This dropped beef product exports from 69 to 40 thousand metric tons, almost cutting exports in half. Exports jumped back to 72 thousand metric tons in 1994 but then dropped to only 29 thousand metric tons with the December 1994 peso devaluation.

Live cattle trade with Mexico is dominated by feeder cattle exports to the US. During 1995, nearly 1 . .38 million feeder cattle were imported from Mexico. A combination of factors related to the 1994 peso devaluation, drought in Mexico, and capital flight resulted in a surge of feeder cattle Imports in 1995. In 1996, about 40 percent of the feeder cattle imports from Mexico entered through Arizona with the remainder entering through Texas.

*iii Arizona-Sonora Agribusiness Study: Livestock

Figure S.3a. US Livestock and Beef Product Trade with Mexico, 198'0-9S.

Beef Product Exports Live Trade 80---------------------------

70

v, 60 §

• - U.S. Beef Product Exports to MX

U.S. Live Cattle Imports from MX

U.S. Live Cattle Exports to MX

1,800

1,600

1,400

1,200 ';'.; 50

i "'C

i :E 40

1,000 :c "'C

"'C

~ 30 800 ~

:::, 0

0

I= 20 600 I=

10

1980

Source: USDA/FArus.

1983 1986

400

200

0 1989 1992 1995

The price impact of Mexican feeders coming into the US market is an issue that has been heatedly debated at times. Particularly when US cattle numbers are at the top of their cycle and feeder prices are depressed. Peel estimates that on average from 1988 through 1992, Mexican feeder imports had the greatest impact on 400 - 500 lb. steer prices. Their price was reduced by $0.44/cwt. or $1.98 / head. Average monthly imports were 87,624 during this period. The highest monthly import level recorded for this period was 336,228 head for December 1986. At this level, the price of 400 - 500 lb. feeder steers was reduced about $2/cwt. or $9/head. In general, Peel estimates that a 100,000 head increase in 400 - 500 lb. steers for a month will decrease the US price by $.70/cwt.

Official statistics indicate that the number of live beef exported to the US from Sonora have increased from 83,350 in 1982 to 256,887 in 1988 and to 321,200 in 1994. Of the beef cattle imported to Sonora for slaughter, most of these animals grade "good" with very few "select." In 1994, 58,855 head were imported for slaughter.

The US is an exporter of "high quality" table cuts while an importer of lower quality cuts used for hamburger. Only recently has the US become a net exporter of beef by value. In 1995 the US exported beef and veal products worth $2.65 billion while importing $1.45 billion. As shown in figure 5.3b, the percentage of US beef production exported has increased from less than 1 percent in 1985 to over 7 percent in 1995. Beef exports dropped off in 1996 and many attribute the decline to food safety and health risk concerns surrounding BSE and e-coli from importing countries

Arizona-Sonora Agribusiness Study: Livestock lid Figure S.3b. US Beef Carcass Exports, 1970-95.

% of US Production

8%-.-----------------------------,

7%

6%

5%

4%

.3%

2%

1%

0%~-.--.--1970

Source: USDA/ AMS.

1975 1980 1985 1990 1995

of Japan and Western Europe. Although exports are a bright spot for US beef, they are not a guarantee and are subject to more fluctuations than domestic demand.

Regional Trade

Similarities in climate and range conditions with Arizona and Sonora suggest that livestock trade should be strong between the two states. Figure 5.3c shows the percentage of Arizona livestock operators that have sold live cattle to Sonora and the rest of Mexico. Over 8.3 percent of these individuals have sold cattle to Sonora and/or the rest of Mexico. To emphasize how important Sonora livestock is to Arizona, only 4 percent of Arizona's livestock operations have sold live cattle to just the rest of Mexico. Of the 26 livestock operators that completed this question, only 6 or 2.3 percent indicated that they have never sold live cattle to Mexico.

Although most Arizona livestock operators have sold live cattle to Sonora, virtually no animals have been shipped to Sonora for grazing with the intent to return to the US. As shown in figure 5.3d, only 1 out of 26 or 4 percent of livestock operators in Arizona have ever done this. Clearly, the border raises several issues regarding the property rights of foreign owners. The ability of Sonorans to ship cattle to Arizona for grazing is rather restricted due to public lands. By law, permittee owners must graze their own livestock on permits.

til Arizona-Sonora Agribusiness Study: Livestock

Figure S.3c. Survey Results: Percent of Arizona Livestock Individuals that have Sold Live Cattle to Sonora and the Rest of Mexico.

% of AZ Livestock Business Individuals

40%

.30%

20%

10%

0%

Figure S.3d. Survey Results: Arizona Livestock Individuals that Have Shipped Live Cattle for Grazing to Sonora with the Intent to Return Them.

% of AZ Livestock Business Individuals

80%

60%

40%

20%

4% 00/o_j_ ___________ ~--

Yes

IVAFTA Regulations and Legal Issues

No

As previously mentioned, NAFTA did not have a direct impact on livestock trade since only health regulations were in place when NAFTA was implemented. Sonora is a state that is free of hog cholera but not free of tuberculosis or brucellosis for beef. Sonora is the only state in Mexico that can export pork meat to the US, Japan, and other countries. Sonora Is in the "eradication phase" for tuberculosis and brucellosis, similar to states like Texas In the US. Although Sonora Is generally recognized as being far ahead

Arizona-Sonora Agribusiness Study: Livestock lit• of other states In Mexico for their eradication program, it is probably another decade before Sonora can be declared free of these diseases. Arizona has been declared free of brucellosis and tuberculosis for almost two decades. Sonora's commercial poultry Industry has had some health problems related to viruses, such as Newcastle. Currently, the Sonoran association of poultry growers argues that health rules imposed by USDA are just a ploy to avoid competition with the US poultry industry. A system of individual farm certification should give USDA reason to recognize Sonora farms free of Newcastle based on facts alone.

Legal issues are a concern for Arizona livestock individuals in leasing pasture to Sonorans or in sending live cattle to Sonora for grazing with the intent to return them. figure 5 . .3e shows that an overwhelming majority of Arizona livestock individuals are concerned about brand registration, grazing contracts, method of payments, re-entry risks, and animal health issues. Although the same brand can be legally registered in both Sonora and Arizona, individuals in Arizona are still concerned about brand registration. Somewhat related, all Arizona Individuals feel that re-entry risk is either a very important or somewhat important concern. Thus, even though brand registration is technically not a issue, it becomes a concern when property ownership rights through the court system are uncertain. Health issues are a concern for Arizona individuals. All herds in Sonora have been tested for tuberculosis and brucellosis at least once during their eradication program initiated in 1991 and animals that tested positive have been quarantined or culled.

Figure S.3e. Survey Results: Primary Concerns of Arizona Livestock Individuals in Leasing Pasture to Sonorans or Sending Live Cattle to Sonora for Grazing.

% of all livestock respondents

I 00%-.---------------------------------,

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

• Brand Registration

~ Re-entry Risk/Concerns

• Grazing Contract Concerns

~ Method of Payments/fraud

• Animal Health Risk


As described in Agriculture in a North American Free Trade Agreement, one of the general goals of NAFTA was to eliminate trade and investment barriers between the United States, Mexico, and Canada to the maximum extent possible. Progress on health issues appears to be moving forward with disease free status requirements attained and proposals like the pilot project for feeding intact heifers from Sonora in Arizona. However, uncertainties regarding legal issues like brand registration are not a problem with the way the law is written, but relate to either the legal system and property rights or incomplete information. Mexico has a strict set of sanitary standards for milk and dairy products at the farm and processing level, but has been slack in enforcing these standards (Foreign Ag. Econ. Report #246). Interestingly, when livestock individuals were asked how they thought the agribusiness industry of Arizona and Sonora could be enhanced the most, legal agreements ranked number 5 out of 15 different issues. Whereas, crop producers ranked the enforcement of legal agreements as most important.

Figure 5.3f displays differences in the perceived use of vaccinations and hormones in Mexico and the US by livestock survey participants with an opinion. Of these Arizona individuals, 60 percent feel that Mexico utilizes less vaccinations compared to 29 percent of the Sonora individuals. Fewer vaccinations in Mexico could be viewed as a threat to animal health. Arizonan's indicated that Mexico uses more growth hormones than in the US, while most Sonoran's feel that usage is about the same. Over 50 percent of the respondents from Arizona did not have an opinion on these two issues, while all Sonoran respondents did.

In moving products across the border, 57 percent of livestock individuals said that they occasionally experience a problem while 14 percent said that they either always or frequently have a problem. The range in crossing time was anywhere from 30 minutes to 14 days. Customs and APHIS were the two agencies that Arizona livestock individuals reported having the most problems with in crossing the border. Of the Arizona

Figure 5.3f. Survey Results: Differences in the Use of Growth Regulators/Hormones and Vaccinations in MX.

70%

60% • Arizona

E'ZJ 50%

40%

30%

20%

10%

0% MX MX MX MX MX MX Less Same More Less Same More

Growth Regulators & Vaccinations Hormones

Arizona-Sonora Agribusiness Stud~: Livestock Ii@ individuals surveyed that are doing business in Mexico, livestock individuals are much less likely to have an individual primarily devoted to border crossings than other sectors.

Livestock individuals ranked improvements in transportation and communication infrastructure in Sonora as the most needed Item for enhancing agribusiness for the two states. Streamlining border crossings for products and unifying standards and grading were the next two highest ranked activities. A bilingual regional agency as a place to go for current regulations specific to agriculture ranked next, just ahead of legal agreements that offer enforcement of contracts. Chapter 7 on finance and marketing discusses these results In more detail.


This section describes the strengths and weaknesses for the livestock sectors of Arizona and Sonora along with potential opportunities and threats to growth. Drawing from previous sections in this chapter, table 5.4a highlights the situation for Sonora. Sonora's strengths lie in their disease eradication programs, long tradition of livestock activities, inexpensive labor for production and processing, and their established market for feeder cattle in the southwestern US states. Challenges for Sonora include high feed grain costs, high levels of financial debt and loan default, Inefficiencies in their marketing system, and frequent drought problems that induce grass and water shortages. Decreasing market share of beef for meat products In developed countries is another challenge for the Region's livestock sector. Opportunities for Sonora include the attraction of more private investment through amendments made on Article 27 to improve their financing and infrastructure. Exporting intact feeder heifers to Arizona under the pilot project proposed and expanding their export of pork products to southeast Asia are also good export opportunities for them.

Table 5.4b summarizes the opportunities, strengths, weaknesses, and threats for Arizona. The dairy industry has increased in Arizona during the last decade where most other sectors have decreased in size. This growth reflects an increasing population and the ability to competitively produce cheese and other dairy products. Arizona's large dairies have been able to attain and monitor quality control better than the numerous small dairies located in Wisconsin. Strengths of the beef industry are in feeding Sonoran steers and an upward trend in beef carcass exports. Meat product sales to restaurants and high-end Sonoran consumers is a potential growth market. In particular, solidifying a consistent free trade policy for boxed beef sales could help Arizona's meat product industry establish a stronger market presence in Sonora and the rest of Mexico. Streamlining border crossings for meat and dairy products would help facilitate increased sales to Mexico.

High feed costs In Arizona relative to the mid-west and TX-OK panhandle region are one of the biggest challenges for the livestock industry. Corn prices and the cattle cycle make feeder prices susceptible to wide price swings from year to year. A decline in the number of grazing permits along with added expenses to constrain livestock from environmental sensitive areas is placing additional pressure on declining ranch numbers. Not surprisingly, a higher percentage of livestock operators reported employing less employees compared to five years ago than the other sectors. Health concerns from

l{•I Arizona-Sonora Agribusiness Study: Livestock

eating red meat, price competition from other meat groups, and the Inability to produce a product of consistent quality that is convenient to consume are challenges that the fragmented beef industry is facing. In spite of all these issues, restaurant sales for high quality cuts of meat have been strong.

Food safety Issues are at the forefront of the beef Industry now with recent claims surrounding BSE and Isolated e-coli scares. Other potential threats to the Industry include everything from problems associated with urban encroachment to disease outbreaks and trade barriers for meat products or breeding livestock sales to Mexico.

The US's importation of feeder cattle from Mexico while exporting beef products to Mexico, as described earlier in figure 5.3a, Is an example of how trade can flow both ways within a specific sector. Sonora and Arizona should be leaders in taking advantage of this complementary trade flow. Support for the pilot project of feeding intact heifers from Sonora in Arizona's feedlots and Sonora following a consistent free trade policy with Arizona's boxed beef products will give the Region a competitive edge to other states in this complementary trade flow.


Table o.4a. Assessment of Livestock Sector for Sonora.

Strengths Strong tradition of livestock activities. High availability of low-cost labor. Captive market for feeder cattle in Arizona and other southwestern states. Efficient egg production for domestic demand. Sonora is free of hog cholera and ahead of other Mexican states in working to eradicate tuberculosis and brucellosis. Low cost land-leasing in rain-fed areas.

Weaknesses Lack of developed stock water for drought periods. High feed grain costs. Decreasing per capita consumption of beef in developed countries. Lack of research on animal genetics. Lack of grazing land management training. High financial costs and indebtedness. Excessive middlemen activities in marketing livestock. Deficient cooling infrastructure for meat packing.

Opportunities Potential to increase milk production under joint-ventures. Pilot project to feed intact heifers from Sonora in Arizona. Grazing of cattle from Arizona. Export credit guarantees from USDA for importing Arizona breeding livestock. Introduction to Sonora of exotic species such as ostriches. Increasing demand for pork in Asia. Amendments to Article 27 (privatizing ejido lands) that will create incentives for attracting private investment.

Threats Increasing imports of beef products with an overvaluation of the Mexican peso. Tuberculosis and brucellosis not eradicated. Growth in indebtedness and loan defaults. Overgrazing problems heighten. Livestock imported from other Mexican states into Sonora with diseases eradicated in Sonora. High fluctuation in feeder calf prices.

1111

It• Arizona-Sonora Agribusiness Study: Livestock

Table 5.4b. Assessment of Livestock Sector for Arizona.

strengths Arizona feedlots have been successful at feeding Sonoran and other Mexican steers. No quarantines or health problems for Arizona animals. Dairy industry has positive economic indicators for increasing production. Upward trend in beef export sales. Traditional supplier of breeding livestock to Mexico. Dry climate helps reduce problems associated with animal waste.

Weaknesses Feed costs are relatively high compared to other US feeding regions. Fed beef prices are lower than the packer concentrated TX-OK panhandle region. Decline in the number of grazing permits. Decreasing market share of total US meat consumption for beef. Strong price competition for beef from poultry.

Opportunities Packing industry to increase the export of high quality boxed beef and other meat products to Mexico. Dairy industry to export fluid milk and dairy products to Mexico. Advances in communication technology and streamlined border crossings to enhance trade with Sonora. Ranch recreation activities in rural areas.

Threats Non-tariff trade barriers for meat and dairy products to Mexico. Trade policy on boxed beef exports to Sonora that is uncertain and can go against free trade with quotas and other non-tariff trade barriers. New outbreak of a disease like tuberculosis in Sonora. Major financial crash like the 1994 devaluation of the peso. Urban encroachment and air pollution problems for feedlots, dairies, and ranches. Food safety risks or scares.

Arizona-Sonora Agribusiness Study: Livestock Jt•i 5.5 References

Anuario Estadistico del Estado De Sonora, INEGI-Gobierno del Estado De Sonora-APO y GP. Hermosillo, Sonora, Ed. 1996.

Arizona Agricultural Statistics, National Agricultural Statistics Service / United States Department of Agriculture and The University of Arizona, various issues.

Blaney, Don P., James J. Miller, and Richard P. Stillman, Dairy, Background for 1995 Farm Legislation. Commercial Agriculture Division, Economic Research Service, USDA, Agricultural Economic Report No. 705, April 1995.

Fowler, J.M., D. Rush, J.M. Hawkes, and T.D. Darden. "Economic Characteristics of the Western Livestock Industry." Range Improvement Task Force, Agricultural Experiment Station Cooperative Extension Service, New Mexico State University, Report #35, January 1994.

Mayes, Horace M. and Thomas F. Archer, "Arizona Cattle Ranches on Public Land." College of Agriculture, Range Task Force Report, November 1982.

Peel, Derrell, "US and Mexican Cattle and Beef Trade." Paper presented at NAFTA and Agriculture: Is the Experiment Working," A Tri-National Research Symposium, San Antonio, TX, November 1996.

Ruyle, George, "Sustainable Ranching in Arizona." Town Meeting Paper, School of Renewable and Natural Resources, 1995.

Sheridan, Thomas E., Arizona, A History, University of Arizona Press, Tucson, 1996.

United States Department of Agriculture, Agriculture in a North American Free Trade Agreement, Analysis of Liberalizing Trade Between the United States and Mexico, Economic Research Service, Foreign Agricultural Economic Report No. 246, September 1992.

141 Arizona-Sonora Agribusiness Study: Livestock

Arizona-Sonora Agribusiness Study: Food Processing ---------

Chapter 6

Food Processing

6.1 Overview of Food Processing Sector

Processed foods and beverages are often referred to as "value-added" products. They are valued-added products because raw products like wheat and yeast, for example, are transformed into higher value products like bread and pastry products. Processing activities may be more minor as in the case of canned fruits and vegetables or quite extensive, as in combining nuts, sugar, cocoa, milk, and other ingredients to make candy bars. Live beef sales are a raw commodity, even though they are a "high-value" good since grains are fed to fatten beef. As beef moves further through the marketing channel and is sold as carcass beef, boxed beef, or shrink wrap in the grocery store, it becomes a processed food product. The majority of processed food sales are made from large and well-known brand companies (e.g., Kelloggs, Pillsbury, Frito Lay, and PepsiCo).

Regional Importance of Sector

A new era of food processing began for Sonora in the 1960s with modernization of their food processing industry. Between 1955 and 1985, the total gross value of food processing production grew at a remarkable rate of 5.8 percent annually. Growth was not entirely smooth though. Problems related to lack of credit, inflation, scarcity of raw materials, and lower productivity reduced growth in the mid-1970s and later. Sonora's food processing industry comprised 7 .3 percent of their GSP in 1993 and employed 8.3 percent of their labor force (INEGI). The food processing industry of Sonora includes meat processing, dairy products, cereal processing, bakery products, tortilla processing, cooking oils, cocoa and chocolate processing, animal food, and beverages.

According to the number of establishments, jobs, and value-added activities from 1985 to 1993, sectors of Sonora's food processing industry can be classed as either declining, stagnating, or growing. Industries that have followed a decreasing trend include baking and tortilla products (though growth was spurred some in 1993). Beef, dairy, cocoa, and chocolate products have been rather stagnant over this period. Beverage products, animal feed, cooking oil, and cereals have demonstrated more of an increasing trend.

Arizona-Sonora Agribusiness Study: Food Processing

The value contributed by Municipality for food processing in Sonora, in decreasing order is, Cajeme (38%), Hermosillo (26%), Navojoa (13%), Guaymas (10%), Huatabampo (6%), San Luis Rio Colorado (3%), Nogales (0.4%), and Empalme (0.3%). Thus, the principal food processing area for Sonora is in the south, in the midst of the Yaqui and Mayo valley's 950,000 acres of irrigated land. Southern Sonora has several modern processing plants that utilize state of the art technology. Other resources like uncontaminated water, an international airport, quality of life factors, and a good supply of educated, productive and low cost workers have been noted as reasons for attracting recent investments in international food processing firms. Sonora spends more than 60 percent of its state budget on education and their population is one of the most educated in Mexico and Latin America. Individuals average more than 8.5 years of schooling (Weissner). International companies located in Sonora include PepsiCo's Sabritas and Gamesa, the Corona and Tecate beer companies, Green Giant, and Ralston Purina (Weissner). In total, Sonora had 1,906 food processing establishments that generated 24,845 jobs in 1993.

Arizona's food processing industry has grown at an average annual rate of 3.5 percent from 1980 to 1992. However, the percentage of GSP contributed to the state has remained quite flat, around 0. 7 percent (REIS, BEA). Employment for the food processing sector has increased from 7,900 workers in 1987 to 8,400 in 1992 (1992 Census of Manufactures). Arizona reported 204 establishments in 1992 that produced meat products, dairy products, preserved fruits and vegetables, grain mill products, dairy products, beverages, potato chips and similar snacks, ice cream, and other related goods. Most of the food processing activities are in or near the Phoenix metropolitan area. This area provided over 72 percent of the food and kindred product jobs for the state in 1992. Of the 204 food processing establishments in the state, 84 employ 20 or more individuals. These firms have an average employee payroll of 73 workers. Due to the relatively small number of firms, disclosure problems prevent attaining detailed information on employment and value-added activities for most product groups.

National Perspective

As mentioned above, food processing industries in Arizona employed 8,400 workers in 1992 or 0.52 percent of Arizona's employed workers. This percentage is somewhat higher than the 0.4 percent obtained from REIS, BEA, which provided the regional employment numbers referenced in Chapter 3. Although these two figures are close, they differ by enough to illustrate the difficulty in quantifying Arizona's manufacturing industry. The US food processing industry employs 1.3 percent of all US workers or almost three times the percentage of Arizona workers. Food and kindred products (SIC 20) account for 1.5 percent of GDP.

The 7 .3 percent of GSP provided by Sonora's food processing industry in 1993 is higher than the 6.0 percent of GDP provided by this industry for Mexico. The relative share of economic activity accounted for by food processing is much higher in Mexico than the US. Sonora's share of economic activity in food processing is more than ten times the percentage of GSP share for Arizona. However, since the GSP of Arizona is almost ten times that of Sonora, the economic activity generated by the food processing industries of the two states are about equal. In 1995, Sonora's food processing industry produced about US $1.3 billion in goods while Arizona's industry generated $1.2 billion in processed food products.


Growth in food processing trade and foreign investment abroad has grown remarkably in the last five years. Much of this growth has been driven by increasing incomes in developing countries that have a large population like the Philippines, Thailand, India, Indonesia, Mexico, and similar countries. The section on trade patterns at the end of this chapter discusses this growth.


One of the most important programs related to The National Development Plan in Mexico for 1995 to 2000, corresponds to the industrial sector, which includes food processing. The main objective of the plan is to spur growth at an accelerated pace. Special emphasis is given for the promotion of small and medium size companies that are labor intensive and have the potential to generate exports. The program also attempts to identify those regions and areas that may have a comparative advantage. Support from the Mexican government for the export of processed food products can occur in a number of different programs. Some of these programs involve tax refunds on tariffs of imported products (draw back), refunds of value added tax (IVA), the elimination of an export tax, machinery and equipment support (PITEX), and information support about markets and financing.

Government programs are almost nonexistent in the US's food processing sector. Some food products are eligible to receive export market promotion funds but these are time, product, and country specific. Most of the government involvement in food processing activities involves USDA or Food and Drug Administration (FDA) inspection and certification. For example, USDA certified beef is inspected by a federal employee. User fees are charged to recover the expenses associated with inspection and certification.

USDA's Food Safety and Inspection Service (FSIS) oversees much of the safety surrounding processed foods. FSIS has proposed regulations for food safety with what is known as Hazard Analysis Critical Control Point (tlACCP) system. Under tlACCP, individual firms examine their operations and identify the point(s) of their operation that pose the greatest food safety risks. tlACCP involves steps for monitoring and verification from both FSIS and firms which may include microbial testing to ensure that safety targets are being met. Although pathogens (i.e., bacteria, parasites, viruses and fungi) can contaminate many foods, foods most likely to carry pathogens are high protein non-acidic foods like meat products, seafood, dairy products, poultry, and eggs. Increased concentration and production of a wider variety of meats have heightened the importance of pathogen control for ensuring a safe food supply. The Food and Drug Administration issued tlACCP regulations for seafood which will go into effect in December 1997. tlACCP for meat and poultry products will be phased in over several years, requiring large plants to comply sooner than small plants.

Figure 6. 1 a portrays the opinion that Arizona survey participants have, by sector, about food products processed in Mexico versus the US. Most individuals don't have an opinion on the processing technology in Mexico being the same as that in the US. Arizonans marginally disagree that food safety precautions in Mexico are the same as in the US, with 55 percent of food processing individuals and 48 percent overall disagreeing with this statement. Most significantly, Arizona participants overwhelmingly feel that Mexico needs FDA or USDA certification to be accepted by US consumers, even if the processing technology and safety precautions are the same as those used in

Iii Arizona-Sonora Agribusiness Study: Food Processing

Figure 6.la Survey Results: Arizona Participants' Response to Food Products Processed in Mexico compared to the US:

Panel A Undergo Same Processing

Technology?

Panel B. Undergo Same Food Safety

Precautions?

Panel C. Need FDA or USDA Certifica

tion to be Accepted by US

Consumers, Even if the Processing Technology and

Safety Precautions are Equal?

% of Arizona Respondents by Sector

50%-:r,=========::::;----------------.,

45%

40%

.35%

.30%

25%

20%

15%

10%

5%

0%

Crops

Livestock

Food Processing

Finance/Marketing

Overall

Strongly Agree


No Opinion Strongly Disagree

50%-:r,=========::;----------------7

45%

40%

.35%

.30%

25%

20%

15%

10%

5%

0%

Crops

Livestock

Food Processing

Finance/Marketing

Overall

Strongly Agree


50%

45%

40%

.35%

.30%

25%

20%

15%

10%

5%

0% Strongly Agree


~ Crops

• Livestock

• Food Processing

(?J Finance/Marketing

• Overall


Arizona-Sonora Agribusiness Study: Food Processing ---------the US. To emphasize how real this issue is, USDA inspectors tan currently be found in many of Sonora's meat packing plants and at produce loading docks. This is an important issue for the Arizona-Sonora region to consider with food safety concerns at the top of America's list in selecting goods at the supermarket.

Although most Arizona food processors found that labeling requirements for shipping to Mexico were easier than other foreign countries, 33 percent or 3 out of 9 food processing exporters indicated that Mexico was much more difficult than other countries. As shown in figure 6.1 b, this result is noteworthy since none of the 13 Sonoran exporters found labeling requirements more difficult for the US than other foreign countries, and 54 percent indicated that labeling requirements were easier for.the US.

Figure 6.lb. Survey Results: Difficulty of Labeling Requirements for Arizona (Sonora) Food Processors Shipping to Mexico (US)

Compared to Other Foreign Countries.

50% -.-,...--=-----_-_-_-_:;-_-_-_-_-_-_-.:_-_-_-_-_-_-.:_-_-..:;----------------, 45%

40%

35%

30%

25%

20%

15%

10%

5%

0%

Arizona Food Processors

Sonora Food Processors

Less Difficult No Difference

6.2 Production and Market Structure

Structure of Production

33%

0% 0% 0%

More Difficult

Arizona's food processing industry is comprised of a few large plants and several small food processing ventures that make salsa and chile products (Price). Not surprisingly, 4 7 percent of Arizona's food processing respondents said that their size was below average compared to others that sell similar products or services. As shown in figure 6.2a, this "below average" percentage is much higher than for other sectors in Arizona. Some of the larger companies produce cheese, potato products, beverage drinks, dairy products, nut products, and baby foods. Arizona has one of the largest cheese processing plants in the world. Arizona's dry climate, large dairies, and high production per cow allow the industry to produce a quality of milk that is conducive for manufacturing cheese competitively (Armstrong).


Figure 6.2a. Survey Results: Size of Operation Relative to Others that Sell Similar Products and Services for Arizona Participants.


70%--r-;::============================:;--, ~ Crops

60% II] Livestock

50%

40%

30%

20%

10%

Below Average

II Food Processing

II) Finance/Marketing

48%

Average

• Overall

48%

Above Average

About 85 percent of Sonora's food processing estab-lishments employ between 1 and 15 workers. In Arizona, establishments with less than 20 employees accounted for 59 percent of the state's food and kindred product firms. Sonora's food processing industry is fairy well established since about 50 percent have been in business for over 20 years and only 7 percent had been in operation for 3 to 5 years. In contrast to the food processing businesses surveyed in Arizona, 22 percent (4 out of 18) have been in business for 5 years or Jess. Businesses established 5 to IO years and 11 to 20 years accounted for 22 percent each. The remaining 33 percent of Arizona's food processors have been in business for 20 years or more. The average age of respondents' business in food processing sector was 16.4 years. This is significantly lower than average ages in crop (31.3 yrs.), livestock (37.8 yrs.), and finance/marketing (35.9 yrs.) sectors.

Arizona food processing participants indicate that they receive most of their technical assistance/information from their own research and development, with government agencies a distant second. Of the food processing individuals that belong to a commodity association, trade group, or similar organization, 54 percent indicated that these organizations provide no information for them in conducting business with Mexico. This is almost double the "no information" percentage for the other three sectors.

When Arizona participants were asked to evaluate the cooling infrastructure in Sonora and Mexico, only 7 (2) percent from all sectors felt that the cooling infrastructure was adequate in Sonora (rest of Mexico), as shown in figure 6.2b. Although most respondents did not have an opinion or know, over three times as many indicated that Sonora's cooling infrastructure was inadequate compared to those that said it was adequate.


Food processors and finance/marketing individuals feel that Mexico's cooling infrastructure is more inadequate than crop and livestock respondents. Over 30 and 40 percent, of food processors and finance/marketing individuals, respectively, feel that the cooling infrastructure in Sonora and the rest of Mexico needs improvement. Currently about 25 percent of the winter produce consumed in the US passes through Nogales from Mexico (Brooks) and further increases will necessitate infrastructure improvements in Sonora. Thus, a long-term commitment for improving the overall infrastructure in Sonora is needed for enhancing the Arizona-Sonora region's agribusiness sector.

Figure 6.Zb. Survey Results: Arizona Respondents' Evaluation of the Current Cooling Infrastructure in Mexico.


50%-.--------------------------,

45%

40%

35% 30%

25% 20%

15% 10%

5%

• ~

Sonora

Rest of Mexico

0% -+----.-C L FP F/M 0 C L FP F/M 0

INDUSTRY SECTOR: C=Crop, L=Livestock, FP=Food Processing, F /M=Finance/Marketing, and O=Overall

Market Environment

The importance of "value-added" agriculture or food processing and service activities beyond the farm grows every year, as shown in figure 6.2c. The real value (adjusting for inflation) of agricultural products at the farm gate has remained virtually unchanged since 1950, whereas the real dollar of services, packaging and conveniences paid for by consumers has almost doubled since 1950. In 1950 the farm value made up 40.9 percent of total food expenditures. But by 1993 the farm gate value slipped to only 22.2 percent of total food expenditures (both at home and away from home food expenditures).

The farm share of each consumers dollar spent on food varies greatly by product. In 1993, the farm value was 42 percent for fluid milk, 18 percent for iceberg lettuce, 22 percent for fresh fruit, 26 percent for fresh vegetables, 7 percent for bakery and cereal products, 49 percent for fresh eggs, and 40 percent for meat products (Dunham). But


Figure 6.Zc. Componen~ of US Food Expenditures, 1950-93.

Billion 1995 dollars

450

400

350

300

250

200

150

100

50

Total food E\ndltures

Farm Value (-0.03%)

0 -1-...-.-,--,--,--,--,-..,......,,--,--,-.,......,-,--,--,--,--,-..,......,--,----,-,......-,--,--,.....,..-,-.,......,-,----,-.,......,-,---,-...-.-,--,--~

1950 1954 1958 1962 1966 1970 1974 1978 1982 1986 1990

Source: 1993 food Cost Review.

a word of caution is also in order before assuming that all of the farm value shown in the accompanying graph has been added by the farmer. In reality, the farmer also buys many manufactured inputs like fertilizer, seed, chemicals, fuel, etc. before a raw commodity can be sold. Because production expenses are a larger component of cash receipts (crop and livestock) today than in 1950, the actual real value added by farms has declined. Production expenses as a percentage of gross cash receipts has increased from 60.5 percent in 1950 to 85.4 percent in 1990 (USDA Agricultural Statistics). Thus, the actual "value-added" contribution by farmers for each dollar spent on food has declined from 16.2¢ in 1950 to only 3.3¢ in 1990.

Advances in production technology have increased average farm yields by two to threefold for most raw agricultural commodities. For example, US average corn yields have increased from 37 .4 bu. in 1950 to 118.5 bu. in 1990, a 317 percent increase (USDA Agricultural Statistics). Over the same period total corn production has increased 259 percent while the total real farm value (adjusted for inflation) of US corn produced has declined by 30.2 percent. During this period, average US wheat yields have increased 239 percent while total production has increased 268 percent. In spite of almost a three-fold increase in total wheat production the real farm value of all wheat sold has declined by 37 .5 percent over this 40 year period. Clearly, producing more raw product of a commodity does not ensure that the total farm value received in the aggregate will increase.


Figure 6.id. US Per Capita Consumption of Fruits and Vegetables, 198'0-94.

lbs. per person 600-..--------------------~

500

400

300

200

100

0-t"-"-f>----'"-+-"--"l ........ "-r"-""'-i;....,Q,.+-"""""'r .......... ..,....~ .......................................... ""'-f'--..

1980 1982 1984 1986 1988 1990 1992 1994

Note: Retail weight except for fresh fruit and vegetables. Source: ERS/USDA .

Total

Frozen Potatoes

Fresh Potatoes

Avg. Annual % Change

1.1%

3.6%

-0.1% Frozen Vegetables 1.6%

Canned Vegetables 0.4%

Fresh Vegetables 1.5%

Selected Juices 1..3%

Frozen &:. Dried Fruit 1.7% Canned Fruit -1.0%

Fresh Fruit 1.4%

Not all value-added activities related to food processing are growing though. As shown in figure 6.2d, canned fruit products consumed have declined at an annual rate of 1.0 percent in the last fifteen years. Overall, the per capita consumption of all fruit, vegetable and potato products has increased at 1.1 percent. Frozen potato product consumption has increased more than double any category at 3.6 percent while fresh potato products have declined . I percent. The demand for french fries at fast food restaurants and easy to prepare meals has contributed to much of this increase. Private surveys indicate that consumers purchase almost half of their away-from-home meals at fast food restaurants (Lucier). Frozen french fry demand has paralleled the upward trend that has been observed in the away-from-home portion of food expenditures. The growth in US fast food restaurant chains has also expanded the market for frozen french fry exports abroad. In 1995 french fry exports accounted for about 9 percent of their market, up from 5 percent in 1990 and only 2 percent in 1985 (Lucier).

figure 6.2e graphs the shares consumed of processed and fresh fruit for citrus and non-citrus between 1980 and 1995. The figure portrays how the share of fresh citrus consumed has declined relative to non-citrus fruits and how the share of processed fruits has lost market share to fresh non-citrus fruits. An increase in the availability and


Figure 6.2e. Fresh and Processing Share of US Citrus and Non-Citrus Fruits Consumption, 19Z0-95.

Consumption Shares 100% ___,..,,....,....,..........,,....,.....,....,.....,.....,....,,....,....,...,....,....,....,....,.-,-..,....,.....,.....,....,,....,....,....,....,.-,-..,....,.....,.....,....,,....,....,....,....,.-,-..,......

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

1980 1982

Source: ERS/USDA.

• I •''

I I I I I I I I I I I I I I I I I I 11111 I I Fresh Non-Citrus ( 1.1 %)11 · 11111111 I I I I I I I II I I I I I I

1 1 1 1 1 1 1 I I I I 11111111 I I 1111

Processed Citrus (-0.4%)

Processed Non-Citrus (-0.2%)

1984 1986 1988 1990 1992 1994

price attractiveness of fresh non-citrus products during the winter months has contributed to an erosion in the market share of citrus. Other fresh fruits are also somewhat more convenient to consume. A 1992 fresh trends consumer profile study by the Packer found that eating fruit for snacks and then health concerns were the two most important reasons for increasing fruit consumption. Although total fresh citrus consumption has dropped, oranges and grapefruit account for virtually all of the decline since they comprise about 75 percent of US's fresh citrus consumption.

6.3 Trade Patterns and NAFI'A

National Trade

The growth in .US processed food trade has been phenomenal in the last 5 years (Ruppel). Since 1991, US exports have grown by 55 percent while imports grew 21 percent. Total trade in processed foods and beverages amounted to $54.2 billion in 1994, with $29.4 billion in exports and $24.8 billion in imports. Leading industry groups for US exports are meat and poultry products (27%), grain mill products (15%), fish (12%), and fats and oils (12%). From 1993 to 1995, these four groups accounted for 66 percent of processed food exports. Preserved fruit and vegetables products followed by beverages accounted for 10 and 8 percent, respectively, of processed exports during this period.


The US exports food products to many countries with a few countries accounting for the bulk of our trade. From 1993 to 1995 over half of these exports went to Japan, Canada, and Mexico. Over 60 percent of Japan's processed food imports from the US are meat packing products and frozen fish. Leading exports to Canada are meat packing, frozen fish, and canned fruits and vegetables. Meat and poultry products are the leading export industries for Mexican markets as described in Chapter 3. Although exports to Mexico were down significantly in 1995 with the collapse of the peso still being felt, fiscal year (Oct.-Sept.) estimates for 1995/96 indicate that many processed foods groups are making a comeback.

Exports show only part of the picture for food processing exports. In 1995, sales of US owned foreign affiliates were four times greater than US processed food exports. Sales of these affiliates have increased from $75 billion in 1990 to over $11 O billion in 1995, a 46 percent increase. The US is one of the larger investors in foreign food processing and investments. Investments have grown from $15 billion in 1991 to over $31 billion in 1995. The European Union is a magnet for US companies with its high tariffs and affluent consumers. Of the $31 billion of foreign direct investment in food processing firms in 1995, 42 percent was in the European Union, followed by Canada, Brazil, and Mexico accounting for 12, 8, and 7 percent, respectively. Nearly 70 percent of the US's food industry investments are in Western Europe, Canada, and Mexico. Typical to the average, sales of US owned affiliates are three to four times larger than exports for Canada and Mexico. Japan and Korea are countries where exports far exceed sales from US affiliates. Whereas, countries like Argentina, Brazil, Thailand, and the Philippines have sales from affiliates that exceed US processed food exports by tenfold. Although foreign ownership is not a one-way street, US investments abroad have exceeded foreign purchases of the US food processing industry (Bolling, Handy, and Neff).

For the three years from 1993 to 1995, US processed food imports totaled $ 71 billion (Ruppel). US processed food imports have been dominated by fresh fish products and beverages that include wines, brandy and brandy spirits, and malt beverages. These two groups account for over 45 percent of processed imports, with fish and beverage products accounting for 27 and 18 percent, respectively. Meat packing products, preserved fruits and vegetables, and sugar and confectionery products follow accounting for 12, 11, and 11 percent of processed food imports, respectively.

The origin of US imports is more widely dispersed than export destinations for processed food products. However, over 60 percent of the growth in processed foods imports from 1989-90 and 1994-95 was due to an increase In purchases from Canada and Thailand. Meat packing and frozen fish accounted for 40 percent of the US's processed food Imports from Canada from 1993 to 1995. Fish products make up about 75 percent of US's processed food imports from Thailand.

Regional Trade

Before the liberalization of trade policies between the US and Mexico which began in the 1980s, trade between Sonora and Arizona was in the hands of entrepreneurs that had to deal with strict regulations, tariffs, sanitation, and complex rules of foreign In-

It• Arizona-Sonora Agribusiness Study: Food Processing

vestment. New agreements have helped in the transition to freer trade. According to Sonoran survey participants, 57 percent of medium and large food processing companies have directly or indirectly traded with Arizona, 60 percent have traded with other regions of the US, and 60 percent have traded with other countries. Of these Sonoran businesses that have visited Arizona for business, 29 percent have visited an ·operation similar to theirs and 59 percent have explored export possibilities or joint venture opportunities in their visit. Arizona food processors responded similarly to this question since 59 percent considered export and joint venture activities in their business visit to Sonora. Approximately 20 percent of Sonora's food processors have conducted business in Arizona for over 10 years. About 65 percent of Arizona's food processing respondents have exported to Sonora, the rest of Mexico, and other foreign countries, all about the same rate. However, only 16 percent (3 out of 19) indicated that they have received production inputs or technical assistance from Sonora or the rest of Mexico in the last three years.

The primary destination of Sonora's processed foods is the domestic market. In 1995, 100 percent of Sonora's food processors sold within their state, 30 percent sell to the rest of Mexico, and 27 percent to foreign destinations. In 1996, Sonora exported US $3.6 billion in goods abroad. Of these exports, $525 million (14.6%) were accounted for by crops, livestock, fish, and processed food products. Sonora exports hundreds of agricultural products. 'fhe majority are processed food products originating from the agriculture or sea food sector. Also, new processing facilities have invested in equipment that is capable of processing a wide variety of products from the same machine. Goods that account for a large share of Sonora's export revenues include fresh produce, processed vegetables,· preserved fish and seafood, ham and deli meats, sardines, frozen shrimp, and preserved sauces.

Large food retailers in Sonora have marketing agreements with some of the larger food distributors in the US. For example, Safeway maintains export agreements to Mexico with the supermarket Ley and Fleming Foods has an agreement with V.H. supermarkets. These US brand name products represent about 25 percent of Sonora's regional food supply.

Mexico is the place of origin for 32 percent of Sonora's machinery and equipment utilized in food processing. For equipment of foreign origin, 33 percent comes from Arizona, 54 percent is from other areas of the US, and only 12 percent is from other foreign trading partners. In total, the US supplies 59 percent of Sonora's food processing equipment. It is estimated that 57 percent of Sonora's equipment imports are purchased directly and in new condition while 22 percent are Imported on a temporary basis, another 16 percent involve the purchase of used equipment, and the remaining 5 percent involve joint ownership agreements. Other products that Sonora imports from Arizona, California, Texas and Kansas include packaging materials, fertilizers, wax, plastics, refrigeration equipment, cans, labels, cardboard, wheat flour gluten, plastic bags, beef, cheese, machinery and equipment.

Arizona exports to Mexico that are related to the agribusiness sector are given in table 6.3a (nominal US $). A word of caution should be noted in using this state of origin data source since it only counts value from the final shipping point. For example, the transportation sector of Arizona is a shipping point into Mexico for equipment, parts and services that are largely produced in the Detroit area. Very little of the value-added in producing these goods comes from Arizona, but the state of origin data source attributes the entire value of the sale to Arizona if the last shipping point before going into


Table 6.3a. Arizona Exports of Agribusiness Related Goods to Mexico, in million US $, 1989-95.

Year Ag Livestock Food Textile Products Products l'lill Leather Forestry Fish

1989 29.83 5.40 27.14 1.92 3.68 0.13 0.40

1990 23.63 3.74 34.68 3.84 3.09 0.15 0.36 1991 32.52 19.73 53.56 10.93 2.62 0.09 0.09 1992 26.43 38.78 54.67 54.59 2.63 0.07 0.50 1993 38.79 12.35 46.93 62.21 1.91 0.28 0.02 1994 24.76 22.80 53.02 63.35 2.92 0.16 0.05 1995 13.89 1.96 18.16 60.69 1.91 0.09 0.12

Source: USDOC and Trade Info State of Origin Series.

• ii

Mexico is Arizona. This is the kind of shipping activity that is going on with textile mill products from Arizona since the value-added for textile mill products was only 14 million in 1987 census data ( 1992 figures are not disclosed). Livestock and food products going into Mexico show the biggest drop in 1995, after the peso crisis.

JVAFTA Regulations and Legal Issues

Since the implementation of NAITA, Mexico and Canada are much more open markets for the US. However, some food processing individuals in Mexico don't feel that trade has been completely open with them for the US market. The strongest limitations cited for Mexico's exports have been predatory pricing (pricing below cost) and trade practices such as the tuna embargo since 1990. Rigorous phyto-sanitation requirements for Mexico's agricultural commodities going into the US are also cited as an unfair trading practice and the reason why food product exports have lagged behind other sectors.

In spite of the negative impacts, NAITA did reduce trade barriers for many products. For example, raisins had a 50 percent tariff rate in 1985 and this rate was reduced to 20 percent in 1988 and completely eliminated with NAITA. Furthermore, when NAITA was initiated it established a maximum period of 10 years to lift or waive tariffs for products such as beef, milk, cookies, toast bread, and other sweet bread. Some provisions that stipulate lower tariffs for consumer goods and higher tariffs for raw materials and supplies have encouraged the importation of these goods and discouraged domestic production. Some of the goods that fall into this category for Sonora include deli meats, fish, flour, agricultural supplies, and dairy products.

Opportunities for investing and doing business in Mexico changed from a lot of optimism before NAITA to being more careful after the December 1994 peso devaluation. The financial crisis and skirmishes with the US regarding transportation issues, agricultural commodities like avocados and tomatoes, and tuna trade have produced a climate of unhappiness among many Mexican producers and food processors. However,

Iii Arizona-Sonora Agribusiness Study: Food Processing

survey results indicate that NAITA has had more of a positive impact for food processors from Sonora than Arizona. 58 percent of Sonora respondents felt that NAITA has had a positive impact on their profit, albeit a modest increase, while only 4 percent indicated a negative impact. This is much more positive than for Arizona's food processors since only 15 percent felt that NAITA has had a positive impact on their profit and 75 percent indicated that NAITA has had no impact on their profits. Food processors feel that the 1994 peso devaluation has negatively impacted their profits more than NAITA, with 48 and 16 percent from Sonora and Arizona specifying a negative profit impact, respectively.

Both sides seem to agree that NAITA has brought a closer economic integration between Sonora and Arizona, especially for the medium to large size enterprises. Food processors are relatively optimistic that a more fully implemented NAITA in five years will positively impact their profits. Over 63 and 83 percent of Arizona and Sonora respondents, respectively, responded positively to NAITA's impact in five years. Sonora individuals feel that they can achieve economic growth in the manufacturing of labor intensive products, livestock, fishing, mining, and some segments related with beer, automobiles, pasta, cookies, lumber, citrus, and produce.


Tables 6.4a and 6.4b summarize the main strengths, weaknesses, opportunities, and threats facing the food processing sectors of Arizona and Sonora. One of the more prominent strengths of the food processing industry in Arizona is the dairy products industry, especially cheese production. Several other strengths listed relate to US growth in food processing. The area that stands out in food processing now is the growth and amount of goods produced by US owned foreign affiliates. Arizona should be in a better position than most other states in the US to take advantage of these joint venture possibilities in Sonora and the rest of Mexico given our close proximity and familiarity with their region. Arizona's food processing industry is relatively small compared to other states. Most of the large processing firms in Arizona bring a high percentage of their raw vegetable and fruit inputs from outside the state. Historically, Arizona has been better off to utilize its scarce water and land resources for growing produce in the fresh market when other low input cost regions of the US cannot, rather than selling produce for processing. Arizona has to compete with lower water and land cost regions, like the midwest, when producing storable processed goods.

Many of Sonora's opportunities relate to overcoming weaknesses that have slowed the development of their food processing sector. Deficient service capabilities for industrial equipment combined with inadequate transportation, shipping, and handling infrastructure restricts their growth. Foreign investment in food processing activities through joint ventures and marketing agreements could help overcome these weaknesses. The success of more than 20 large food processing firms in Sonora that are competitive in the world marketplace illustrate that food processing ventures in Sonora can be successful. Sonora's supply of qualified workers for food processing activities is a strength of the sector and opportunity for new firms. The threat of future financial and monetary instability is a real concern for food processors that could be buying inputs from one country and selling abroad in another country. Furthermore, delays ca.used by dealing with the bureaucracy of Mexican and US customs can ruin or significantly reduce the value of

Arizona-Sonora AgriPUSiness Study: Food Processing -~i many processed and semi-processed goods before they reach their final destination. These threats of monetary instability and dealing with bureaucracy could be the biggest challenge for the Region's food processing industry to overcome since they require federal action.

Table 6.4a. Assessment of Food Processing Sector for Arizona.

Strengths Dairy products industry has been solid, especially cheese production. Export growth of processed foods from the US has been phenomenal. US brand names have a desired appeal abroad. Sales of fresh cut lettuce have been strong. Total consumer food expenditures continue to increase. Sales of US owned foreign affiliates exceed total processed food exports fourfold. US exports and investment to Mexico more than doubled in the last 5 years. Industry has several small food processors that could grow through export sales. Processed and shelled nut activities have been strong. Well established food safety standards.

Weaknesses Share of processed citrus and non-citrus fruits has declined relative to fresh consumption. Food processing industry is relatively small in Arizona compared to neighboring states. The few larger processing firms bring most of their raw vegetable and fruit inputs from outside the state. Lack of cheap water for growing raw products locally.

Opportunities US consumer's increasing preference for convenience foods. Hazard Analysis Critical Control Point program to alleviate consumer's food safety concerns. Income growth in Mexico is likely to make a fast growing market for US exports. Fresh cut products for melons, fruits, and vegetables are poised to test the market.

Threats International events that would restrict exports abroad. Slow income growth in highly populated and low income countries. Food safety scares.

Ml Arizona-Sonora Agribusiness Study: Food Processing

Table 6.4b. Assessment of Food Processing Sector for Sonora.

Strengths High quality in food inputs. Strategic geographical location. High integration between food processing industry and products derived from wheat, corn, oilseeds, vegetables, and fish. More than 20 large food processing firms with high success in international markets. Technology innovation in export-oriented businesses. Dynamic production in the so-called "agromaquila" (new global agribusiness). Good levels of English and computerized systems (e.g., Internet) in industries with more than 15 employees. Low job-rotation in the industry.

Weaknesses Scarce information on markets and export feasibility. Too much bureaucracy and export prerequisites paperwork. High interest rates. High toll costs for highway traffic. Inadequate railroad system for raw transport materials. Deficient services available in some industrial areas. Deficient port facilities for handling and shipping containers. Scarce integration between research centers, the food processing industry and farmers. Current tax policy adversely impacts small and medium size businesses. Scarce innovation on research and development in domestic-oriented micro and small businesses.

Opportunities Growth in the supply of semi-processed goods in foreign markets, and legal facilities for their export. Improvement of pre-cooling, freezing, canning, packing and storing facilities for horticultural crops. Easy access for foreign investment into food processing industry. High opportunities and commitment to establish joint ventures with export-oriented food processing Mexican businesses. Growth in intermediate good segments of food processing industry. Oversupply of qualified workers for food processing activities.

Threats Non-tariff baniers in the US that affect the export of processed food products. High variability of international prices for semi-processed food, and high shifts in demand. Financial and monetary instability (inflation) that affects production costs for the industry. Bureaucracy of Mexican customs agency that delays the transport of fresh and processed products. Increasing competition due to the opening of markets to worid competition.

Arizona-Sonora Agribusiness Studg: Food Processing • t• 6.5 References

Armstrong, Dennis, The University of Arizona, Department of Animal Science, personal communication, January 1997.

Bolling, Christine, Charles Handy, and Steef Neff. "Foreign Affiliates of US Food Firms." Agricultural Outlook, Economic Research Service, United States Department of Agriculture, Washington, D. C., Jan.-Feb. 1997, pp. 36-37.

Brooks, Laura. "Mexico Finds Ripe Market for Tomatoes." Arizona Daily Star, May 12, 1997.

Dunham, Denis Food Cost Review, 199.3, United States Department of Agriculture, Economic Research Service, Agricultural Economic Report #696, United States Government Printing Office, Washington, D. C.

Instituto Nacional de Estadistica Geografia e Informatica, XIV Censo Industrial, Industrias Manufactureras Extractivas y Electricidad, Censos Economicos, 1994.

Price, Ralph. The University of Arizona, Department of Nutritional Sciences, personal communication, May 1997.

Ruppel, Fred. "US Trade in Processed Foods." Agricultural Outlook, Economic Research Service, United States Department of Agriculture, Washington, D.C., Jan.Feb. 1997, pp. 34-36.

Weissner, Jose Alonso. Picture Yourself in Sonora Mexico. Weissner Publicidad, Hermosillo, Mexico, 1997.

United States Department of Agriculture. NAfTA: Situation and Outlook Series. International Agricultural and Trade Reports, Economic Research Service, WRS-96-3, Washington, D.C., September 1996.

United States Department of Agriculture, Agricultural Statistics, various issues, Economic Research Service, United States Government Printing Office, Washington, D. C.

United States Department of Commerce, Regional Economic Information Systems, Bureau of Economic Analysis, June 1996.

tlffl Arizona-Sonora Agribusiness Study: Food Processing

Arizona-Sonora Agribusiness Study: Finance and Marketing

Chapter 7

Finance and Marketing

This chapter focuses on finance and marketing issues for the Arizona-Sonora region. Marketing is combined with finance since commodity brokers, cotton gins, and other marketing entities are an important component of agricultural financing for the Region. Trade issues related to border crossings, broker services, and exchange rate volatility are also discussed in this chapter. National inflation, interest rates, exchange rates, and farm financial situations are addressed in the following section.

7. I Finance and Credit Situation

National policies and events play a crucial role in the financial stability and credit situation of each country. For example, the recent December 1994 peso devaluation sent shock waves through financial institutions, investors, and consumers in Mexico and US border cities. National events like the 1994 peso devaluation have a direct impact on interest, inflation, and exchange rates. Figure 7 .1 a graphically describes the interest and inflation rates for Mexico and the US from 1980 to 1996. Interest and inflation rates have been distinctly more stable in the US than Mexico. To a large degree, the difference in financial stability between the two countries reflects the stability of their monetary and fiscal policies. Although nominal interest rates in Mexico have exceeded US rates for the entire period, Mexico's rate of inflation has also exceeded the US's inflation rate. In fact, Mexico's inflation has been so high that real interest rates (nominal interest minus inflation) have averaged a negative return (-6.5%) for lenders from 1980 to 1996 (see figure 7. 1 b). In contrast, real interest rates for the US were positive for the entire period and fell within a relatively stable range of 2.8 and 11.1 percent (annual average of 5.8 percent).

Clearly, the uncertainty of Mexico's currency hinders financing and growth in Mexico. Financing Growth and Development in the Sonora-Arizona Region (Melvin and Solorio) is another study component of the overall "Strategic Economic Development Vision for the Arizona-Sonora Region" that this study is a part of. Melvin and Solorio discuss how there was a credit shortage in Sonora prior to the 1994 peso devaluation, and how the financial crisis just exacerbated their existing credit problems. The oligopolistic nature


Figure 7.la. Mexican and US Inflation and Preferred Interest Rates, 198'0-1996.

Annual Percentage Rate 160%,---------------,e------;::=============

140%

120%

100%

80%

60%

40%

20%

1980 1982 1984 1986 1988

- MX Interest Rate (CPP)

-e- MX Inflation

_.,_ US Interest Rate (Prime)

--+- US Inflation (CPI)

1990 1992 1994 1996

Source: Economic Report of the President and La Economia Mexicana en cisias.

Figure 7.lb. Real Interest Rates for the US and Mexico, 198'0-1996.

Real Interest Rate 30%-.---------------------------------,

20%

10%

0%

-10%

-20%

-30%

-40%

-50%

US (Average= 5.9%)

~

Mexico (Average= -6.5%)

-60% ---...--,------.---,---.----,---.....--,-----,---,---.---,---...--,-----,---,---1980 1982 1984 1986 1988 1990 1992 1994 1996

Source: Economic Report of the President and La Economia Mexicana en cisias.


of Mexico's financial system contributed to their credit shortage long before the 1994 peso crisis. Sonora's shortage of credit is widely recognized as a factor in restricting their growth. Opening Mexican financial markets to US institutions more would help ease the credit situation in Sonora. However, low and stable inflation for some time in the Mexican financial market will be required before many US lenders will move into Sonora's credit market.

The inflation rate for Mexico has been a primary force in driving the exchange rate between the US dollar and the new Mexican peso. Figure 7 .1 c shows how the number of new pesos required to purchase one US dollar has increased from .023 in 1980 to 7 .598 in 1996. The 42.4 percent average annual increase in the exchange rate mirrors the 43. 7 percent average inflation of Mexico over this period. Since US inflation averaged 3.9 percent between 1980 and 1996, the purchasing power of the new peso has slipped around 2.6 percent annually to the US dollar.

Table 7 .1 a gives selected farm financial indicators for Sonora and Arizona. Although cash receipts for Sonora were about 3 percent more than for Arizona in 1994, total farm debt for Arizona exceeded Sonora by 16 percent. This would suggest that Sonora's repayment capabilities for debt are no worse than for Arizona. However, Sonora's 25 percent loan default ratio in 1994 indicates that financial hardship is widespread in Sonora. The economic size difference between an average unit in Arizona versus Sonora is one factor in explaining why Sonora has experienced so much more loan default. Sonora has 6 to 9 times as many farms and ranches as Arizona, depending on how a unit is defined. Since cash receipts for the two states have been roughly equal in recent years, on average Arizona's units are 6 to 9 times larger in cash sales than Sonora.

Figure 7.lc Currency Exchange Rate Between the US and Mexico, 198'0-1996.

Annual Average Exchange Rate

8-..-------------------------------------, 7

6

5

4

3

2

1

1980 1982 1984

Source: La Economla Mexlcana en cifras

1986

Number of New Pesos for 1 US Dollar

1988 1990 1992 1994 1996


Table 7. I a. Selected Farm Financial Indicators in Arizona and Sonora, 1993-95.

Arizona Sonora

1993 1994 1995 1991 1994 1995 Total Farm Debt (Million US$) 1,217 1,256 NA 1,080 1,090

Debt in Default (Million US $) 271 172

Default Ratio (default debt/total debt) 25% 16%

Farm Debt to Equity Ratio 11.1% 10.8% NA

Farm Debt to Asset Ratio 10.0% 9.8% NA

Number of Farms and Ranches' (total) 7,400 7,400 7,400 67,954 45,393 (more than 5 hectares)

I USDA defines a farm or ranch as "any establishment from which $1,000 or more of agricultural products were sold or would

normally be sold during the year." Figures for Sonora are based only on land size (I.e., less or more than 5 hectares).

Source: Arizona Ag. Statistics and SAGAR

As part of the "Financing Growth and Development in the Sonora-Arizona Region" study, an informal survey of Arizona's business individuals was made. When participants were asked, "What would you suggest as ways to stimulate lending from US banks and investors to Mexican entities and to Sonora in Particular?" The most common response was related to increasing the security of the lender. Melvin and Solorio point out that such legal reform requires political acceptability in Mexico and it ls doubtful that Mexican citizens will support the improvement of legal recourse to lenders until they are convinced that repeats of the 1994 peso crisis are behind them. Shocks like the peso crisis raise interest rates dramatically for a variable interest rate environment like Mexico and this puts many loans in default. Annual real interest rates have been known to exceed 20 percent in Sonora, as shown earlier in figure 7. I c. Clearly, macroeconomic stability in Mexico is needed before adequate investment capital will flow to Sonora.

7.2 Sources of Credit

This section discusses the sources of credit and financing arrangements that are common in the Arizona-Sonora region. Agriculture accounted for I to 2 percent of Arizona's bank loans in 1996. Whereas, in the same year Sonora's agriculture utilized around 23 percent of Sonora's credit granted to agriculture (Melvin and Solorio). Financing for crop, livestock, and food processing sectors are included in this section.

The crop sector of Sonora receives financing from a variety of sources with commercial banks lending 24 percent of all crop loans. Brokerage firms in Sonora along the US border also provide a good share of financing to Sonora producers. Fifty-five percent of the custom-house brokerages interviewed for this study have provided credit in some form to agricultural producers. These sources of credit could vary from leasing machinery or supplies to loaning money. The relationship between brokers and agricultural producers involves long-term mutual trust since more than 56 percent of Sonoran producers interviewed have utilized the same broker for more than IO years.

Arizona-Sonora Agribusiness Stud1::1: Finance and Marketing

Bancomext, a major source of crop loans for Sonora, provided US $14.3.4 million in 1996 with $112.0 million as short-term credit and the remaining $31.5 million as longterm. Bancomext is a government supported entity that provides loan guarantees and some direct credit to producers that will generate foreign currency through exports. Regions that benefitted the most from this financing were, Navojoa, Hermosillo, Cajeme, Caborca, San Luis Rio Colorado, Guaymas, and Etchojoa. Products that were financed for the export market included garbanzos, wheat, grapes, melons, and other produce.

Regarding other credit sources in Sonora, Banrural and Banco de Mexico (FIRA) loaned $86.5 million in 1996 to support a total of 508,000 acres of crops (about $170/acre of financing). Wheat and corn made up 58 and .30 percent of their financed acreage, respectively. Since 1995 the federal government and the Fondo de Fomento Agropecuario del Estado de Sonora (FOFAES) promoted a new policy to support the crop sector. Main goals were to increase their competitiveness and share of domestic and foreign markets in the long-run through technology transfer, the strengthening of Banrural and FIRA as financing institutions, increased savings through the creation of banks, and increased financing to growers.

As described above in table 7 .1 a, Arizona's production agriculture had an agricultural debt of $1.3 billion in 1994 with 37 percent from real estate loans and 6.3 percent nonreal estate (AZ Ag. Statistics). Commercial banks (34.4%), individuals and others (26.6%), Farm Credit System (15.9%), life insurance companies (12.5%), and Farmers Home Administration (10.6%) have been the main sources of credit for Arizona.

Consolidation of the US banking industry has affected Arizona like it has every other state. Larger banks have gained market share in the area of small commercial loans (less than $100,000) by using automated procedures for evaluating loans, known as "credit scoring." These expert systems built by larger banks have lowered their cost of banking for small loans. Consequently, the comparative advantage for small banks has moved more into mid-size loans, ranging from $100,000 to $1,000,000. Gilbert notes that recent regulation changes designed to reduce the regulatory burden of small banks could help them maintain banking business in rural communities.

Overall, 29 percent or 27 of Arizona's questionnaire respondents indicated they have been involved with finance and investment activities. Of these individuals involved with financing, I 7 (6.3 percent) have made direct loans or invested in Sonora while 8 (30 percent) indicated they have put together similar financing arrangements in the rest of Mexico. These figures reflect much stronger business ties for Arizona to Sonora than the rest of Mexico. Overall results primarily reflect Finance/Marketing and Crop sector responses since these two groups account for the largest share (about 65%) of investments in Sonora and the rest of Mexico. When asked about the basic loan requirements for making loans in Mexico, responses included trust and reputation, character weighted equal to collateral, non-revocable letter of credit, security in US assets, contract on production allowing for deduction of loan upon delivery and settlement of crop.

Credit default and/or insufficient credit has affected 97 percent of the respondents in Sonora. At least one-third of the respondents have had a problem with loan default in the past. In the last three years, 23 percent have had a loan default problem. These default rates are consistent with state averages for Sonora in 1994. As reported earlier


in Table 7 .1 a, default rates for agriculture loans in 1994 were around 25%! These numbers portray the severity of the financial crisis in Sonora and are likely of great concern for Arizona financiers that have invested or are thinking of investing in Sonora. Questionnaire results revealed that the main sources of financing in Sonora were commercial banks (24%), self-financing (20%), other sources (20%), development banks (14%), savings (13%), and joint ventures (9%). 30 percent of Sonoran individuals have a financing arrangement with a US source.

The livestock sector of Sonora is less dependent on external financing sources than the crop sector. An estimated 80 percent of livestock operators provide their own financing with commercial banks accounting for only 7 percent of loans. However, several ranchers reported problems with obtaining sufficient credit for their operations. 45 percent of surveyed brokers provide some sort of financing to the livestock operators in Sonora. In recent years, loan default has been a more serious problem in the livestock sector than in the crop sector. Loan default in the livestock sector has been as high as 40 percent in the last three years.

Bancomext is the main source of financing for the livestock industry of Sonora. In 1996, the credit provided by Bancomext was US $34.4 million, with $12.8 million short-term and $21.4 million long-term loans. The most supported municipalities were Hermosillo, Navojoa, Carbo, Moctzuma, Sahuaripa, and Magdalena. Credits were mainly for hog and beef cattle activities. In 1995, through Alianza para el Campo, the Federal Government and the FOFAES set mechanisms in place to give credits (US $3 million) in order to increase production and competitiveness. The loans provided were used for animal health, milk production, rangeland establishments, and genetic improvements. Also, a state level program throughout the Patronato para la Infraestructura del Estado de Sonora, gave support to improve their livestock infrastructure.

When Arizona livestock individuals involved with financing or investment activities were asked whether they had provided loans or invested in Mexican business activities, 71 percent (5 out of 7 respondents) said that they had for Sonora. Given that there were 30 livestock "business individuals" that returned a questionnaire, one must also conclude that joint venture activities have been rather limited for Arizona's livestock industry. Four Arizona livestock participants had joint ventures in Sonora and one of these individuals also had a joint venture agreement somewhere else in Mexico. In all cases, Arizona participants provided financing for their venture with their own capital.

The food processing industry of Sonora has received financial support primarily from Bancomext and state government Joans. Bancomext provided US $4.24 million in 1996 for pork processing services and other production. The state granted loans for two cotton gins in Etchojoa and Navojoa that amounted to US $1.5 million. Questionnaire results found that the main sources of financing for small and medium sized firms is their own revenues (39%), loans and investment provided by Arizona sources (18%), and financing for other US states (I 8%). 50 percent of the custom houses along the border have provided financing to the food processing industry if production inputs for crops are included.

Of Arizona's food processing individuals involved with financing or investment activities, 60 percent (3 out of 5 respondents) said that they had invested or made Joans in Sonora while 50 percent (2 out of 4 respondents) said that they had for the rest of Mexico. When asked about joint venture activities one organization had activities in


Sonora while another had activities in both Sonora and the rest of Mexico. Capital provided by Arizona food processors was rather limited compared to other sectors since 5 percent was the maximum amount of own financing provided in their joint ventures. Two out of three of these ventures were financed primarily by their partners with one foreign partner that provided 95 percent of the financing and the other venture had a national partner that provided 99 percent of financing. One venture had significant bank financing (70 percent of capital) with most of the remaining funds from a national partner (25%).

Overall, high default rates make it more risky to loan in Sonora. High interest, inflation and default rates make Sonora and rest of the Mexico a difficult place to operate for Arizona financiers. These circumstances also make it more difficult for Sonoran agribusiness to secure financing. These concerns should be eases some if Mexico pursues a more stable monetary policy, trade restrictions are minimal, and the Mexican economy resumes a pattern of strong growth.

7.3 Trade and Marketing Issues

This section includes information on the results of interviews from twenty customhouses along Sonora's border that offer agribusiness services and Arizona's finance/ marketing respondents. The origin and destination of commodity trade along with the movement of products across the border is addressed in this section.

The role of brokers (Arizona term) or custom-houses (Sonora term) is very important for moving products across the border and marketing abroad. Most Sonoran individuals said that they export their products to the US and require custom-house/broker services along the US-Mexican border. However, the marketing and border-crossing process is far from working as efficiently as it should be. For example, forms that have to be filed and bureaucracy that must be dealt with at the border restricts the movement of perishable products.

When Arizona's finance/marketing participants were asked how often (always, frequently, occasionally, never, or not applicable) they have experienced problems in moving their products across the border, 57 percent of respondents said that they occasionally experience problems, 14 percent frequently have problems, 8 percent indicated that they always have problems, and O percent indicated that they never have problems. Loses at the border are very significant when they occur. Finance and marketing individuals indicated that they have lost entire loads with loses up to $100,000 per load. When asked to identify what agencies have been most difficult to clear in moving products across the border, customs was cited the most often by survey participants.

86 percent of Arizona's food processors surveyed indicate that they use brokers for handling their imports and exports. As expected, Nogales was by far the most common port of entry/exit among the respondents. 67 percent of food processors and marketing individuals and 54 percent of crop individuals indicated that they have an employee who is primarily devoted to taking care of border crossings. This represents an expense that could be reduced with a more streamlined border crossing procedure. Broker respondents from Arizona identified streamlining border crossi,ng formalities as the number one means for enhancing Arizona-Sonora agribusiness.


Among Sonora respondents, 68 percent of the custom-house/broker services are for crops, 42 percent for livestock, and 63 percent for food processing activities. Export destination data reveal that 20.8 percent of Sonora's crop products go to Arizona; 70.6 percent to the rest of the US; and 8.6 percent to other countries. The destination of livestock products is: 2.5 percent to Arizona; 87 .5 percent to the rest of US; and 1 0 percent to other countries. The food processing industry ships 58.3 percent to the rest of the US, 25 percent to Arizona, and 15.8 percent to other countries.

In relation to Sonora's imports, 4 7 percent of their custom-houses have worked with crop individuals, 37 percent with livestock individuals, and 53 percent with food processing individuals. The origin of imports for Sonora's crop industry is: 33. 7 percent from Arizona; 62.2 percent from the rest of the US, and 4.1 percent from other countries. For the livestock industry, Sonora's import origin is strongly Arizona (52.8%); then the rest of the US (40.0%); and other countries (7.2%). The origin of imports for Sonora's food processing industry is first the rest of the US (49.8%); then Arizona (41.0%); and lastly other countries (9.2%).

Interviews revealed that 65 percent of the custom-houses in Sonora export agricultural inputs, primarily livestock and food processing inputs. Arizona was the destination for 20 percent of these inputs, 71.5 percent to the rest of the US, and only 8.5 percent to other countries. More specifically, 30.9 percent of the exports of livestock inputs went to Arizona with the remainder going to the rest of the US. Food processing inputs from Sonora were primarily exported to the rest of the US (71 %), then Arizona (23%), and other countries (6%).

Regarding the importation of inputs into Sonora, 70 percent of the custom-houses have provided services to crop individuals; 50 percent to livestock businesses; and 55 percent to food processing industries. The origin of such imports for the crop industry were 18.6 percent from Arizona; 68.6 percent from the rest of the US; and 12.8 percent from other countries. Inputs imported for the livestock industry were; 23 percent from Arizona; 72 percent from the rest of the US; and 5 percent from other countries. Food processing is much less dependent on the rest of the US, accounting for 49.0 percent of imported inputs, then 25.5 percent each comes from Arizona and other countries.

Exchange rate volatility is a risk that agribusinesses face when doing business in Mexico. About 60 percent of Arizona respondents indicated that they are concerned about future peso devaluations. But only 6 percent indicated that they have considered using Mexican peso futures on the Chicago Mercantile Exchange as a way to manage exchange rate risk. Although, an unstable peso is an uncertainty that reduces cross border expansion of agribusiness, the opportunity to reduce exchange rate risk by utilizing the Mexican peso futures exist. Efforts should be made to make local agribusinesses aware of this tool.


7 .4 Cluster Analysis

Table 7 .4a summarizes strengths, weaknesses, opportunities and threats for Sonora's finance and marketing sector. A key advantage for Sonora is its close proximity to the US border and the strength in business ties that have been developed with Arizona agribusinesses. Problems associated with high loan defaults and poor cooling, shipping, and transportation infrastructure continue to restrict growth. The North American Development Bank (NADBank) came into existence on January 1, 1994 with the passage of NAFTA. To date NADBank has financed 11 projects (6 of the 11 are in Arizona and Sonora) amounting to over $63 million for infrastructure improvement. Virtually all of the moneys have been for projects to improve sanitation and water quality. But in the future it is possible that NADBank will loan moneys for the improvement of infrastructure related to cooling, shipping, and transportation. The biggest threat for Mexico's finance sector is macroeconomic instability. Mexico's inflation in the past has been so variable that it will take many years before a sense of stability and confidence can be regained by citizens and potential investors in Sonora.

Strengths, weaknesses, opportunities and threats for the Arizona finance and marketing sector are summarized in table 7 .4b. A primary strength of this industry is the business relationships that have been nurtured over the years with Arizona and Sonora individuals. Trust was the most common item listed by Arizona respondents for making loans in Mexico. Conversely, individuals that are seeking business ventures in Sonora that are not familiar with the trustworthiness of agribusiness individuals are at a disadvantage. This weakness could be partially overcome by having a better system of enforcing legal agreements between Arizona and Sonora agribusiness individuals. A continuation of the financial crisis in Mexico and high loan default rates are a threat to the growth of this sector. Trade wars implemented with snapback provisions or phytosanitary measures also pose a threat to this sector. Arizona's capital and technological expertise combined with lower wages in Sonora present opportunities for joint financing ventures across the border.

High rates of return are also required to attract capital to new ventures that are generally more risky in nature. Companies that have worked closely with universities experience higher rates of return than their counterparts (Roedemeier). As reported in the September 1995 issue of Coopers & Lybrand, Trendsetter Barometer, "Growth companies that utilize university resources boast productivity rates that are 59 percent higher than their industry counterparts, in terms of revenue per employee. Likewise, companies with universities have projected annual revenues that are 21 percent higher and capital investments that are 23 percent greater than their counterparts." Better communication and technology transfer between universities and industry could be one of the better long-term strategies available for attracting more capital to the Region.


Table 7 .4a. Assessment of finance and Marketing Sector for Sonora.

Strengths Proximity with potential financing sources in Arizona and other US border states. Strong ties and mutual trust between Arizona brokers and Sonora producers (56 percent of Sonora producers have used the same broker for more than IO years). Experience with commercialization services on the Sonora border (e.g., border brokers).

Weaknesses Problems with loan default and consequential indebtedness between agribusiness managers. Necessity of alternative sources of financing for agribusiness. Difficulties in obtaining information on new regulations. Political influence can bias agricultural statistics. Necessity to enlarge the cooling and shipping infrastructure. Deficiencies in crossing the border with merchandise.

Opportunities Availability of financing can expand the agribusiness sector. Border brokers and custom-houses offering more financing arrangements. Alternative commercialization services like air and marine ports. Promote a better partnership between universities and businesses to improve technology transfer.

Threats Abrupt variations with the macroeconomic situation in Mexico (e.g., peso crisis). Problems associated with NAFfA (e.g., snapback provisions). Inability to handle increased commercial trade flows at the border.


Table 7 .4b. Assessment of Finance and Marketing Sector for Arizona.

Strengths Proximity to a state with high demand for finance. An established distribution system in Nogales that has built years of trust and financing agreements between themselves and Sonoran growers. Arizona houses some established marketing companies that have experience in global marketing.

Weaknesses Lack of a legal system in Sonora for contract enforcement and property ownership. Lack of sufficient linkages and contacts between individuals in both states. Difficulty in obtaining the latest regulations. Transportation and cooling infrastructure in Sonora is lacking.

Opportunities Growing Agribusiness in Mexico needs financing. Use of Mexican Peso Futures as a way to hedge exchange risk. Lower wages in Sonora combined with Arizona capital and technological expertise presents opportunities for joint ventures across the border. Access to Guayrnas port as a closer port outlet for Arizona exports abroad. Closer ties between universities and agribusiness in exploiting new technologies.

Threats Continued economic crisis in Mexico with a high default rate on farm loans. Further devaluation of peso. Snapback provisions (e.g., tomato war). Prolonged delay in setting up a PACA type legal system.


7 .5 References

Arizona Agricultural Statistics, National Agricultural Statistics Service / United States Department of Agriculture, and The University of Arizona, 1980-1995 issues.

Gilbert, Alton R., ulmplications of Banking Consolidation for the Financing of Rural America," Financing Rural America, Federal Reserve Bank of Kansas City, April 1997, pp. 131-140.

Melvin, Michael, and Ernesto Peralta Solorio, "Financing Growth and Development in the Sonora-Arizona Region," Strategic Economic Development Vision for the Arizona-Sonora Region, Report to the Governors of Sonora and Arizona, 1997.

Roedemeier, Dennis D., "Commentary: Developing Rural Equity Capital Markets," Financing Rural America, Federal Reserve Bank of Kansas City, April 1997, pp. 173-175.

•Ariz•·-ona_-.s.on•o•r•a•Agri-•'busin-•' .e.ss•S•tu-d•y•: •Ov-er•all-S•urv-e•y•R•e•sul-ts _______________ _

Chapter g

Overall Survey Results

Survey results directly relevant to individual sectors (i.e., crops, livestock, food processing, and financing and marketing) are presented in chapters 4 through 7. This chapter summarizes results from Arizona and Sonora surveys that are relevant for all four sectors of the agribusiness cluster. Questionnaires used for the survey are presented in Appendices A and B. Please see Appendix C for a detailed listing of responses to all questions. Responses to selected key questions are summarized below.

8.1 Status

In this section, responses to questions pertaining to the current status of a participant's business are summarized. To quantify Arizona and Sonora participants' awareness of and interest in opposing states and countries, each participant was asked several questions.

Figure 8. la indicates that about 70 percent of Arizona (Sonora) participants know at least "some" Spanish (English) and only about 30 percent of participants do not know the other language. 7 5 percent of Arizona participants and 85 percent of Sonora participants indicated that someone in their organization (including themselves) speaks the foreign (English or Spanish) language fluently. It therefore appears that ArizonaSonora agribusiness is reasonably well equipped in terms of language.

Also, 82 percent of Arizona participants have visited Sonora at least once and of these 70 percent have visited Sonora for business purposes. 59 percent of Arizona participants have visited a business operation similar to their own during a trip to Sonora, and 52 percent made trips to Sonora to explore the possibility of exporting or forming a joint venture in Sonora. These numbers indicate that survey participants on both sides of the border are well aware of each others state and display aptitude and interest in cross-border agribusiness activities. This is an encouraging sign and speaks well of the Region's agribusiness sector.

Iii Arizona-Sonora Agribusiness Study: Overall Survey Results

Figure 8'.la. Survey Results: Cross Culture Language Fluency and Arizona's Visits to Sonora.

100%-.--------------------------- ....

90%

80%

70%

60%

50%

40%

30%

20%

10%

0%

• ~

Arizona Respondents

(Sonora) Respondents

Speak Spanish {English)

Fluent Some None

Arizona's Visits to Sonora

As a Tourist

For Business

94 percent of Arizona participants and 77 percent of Sonora participants use computers in their business. Almost all individuals in financing and marketing (e.g. brokers) indicated that they use computers in their business. 53 percent of Arizona participants use the Internet fore-mall and/or accessing information on the world wide web. Sonora is a bit lower in this category at 46 percent. Food processing participants from Sonora utilize the Internet more than their Arizona counterparts (64% versus 52%), but are noticeably lower for crops (35% versus 60%), and livestock (14% versus 44$). Overall, about half of the Arizona-Sonora agribusiness respondents are equipped to take advantage of the latest in Internet technology, suggesting this tool could be a very effective way to disseminate information regarding trading regulations and opportunities.

In July of 1997, National Agricultural Statistics Service (NASS) released results from a survey of computer usage and Internet access for US crop and livestock producers. Results showed that 35 percent of Arizona's farmers and ranchers utilize computers for their business, almost twice the 20 percent usage rate for the US. NASS also found that 16 percent of all Arizona ranchers and farmers have Internet access compared to 13 percent for the US. Computer usage and Internet access was found to be almost three times higher from our survey participants than what NASS reported. The NASS survey is representative of all livestock and crop producers in Arizona whereas the population selected for this study was heavily weighted towards individuals that are involved with agricultural trade or hold positions of commodity leadership.

Arizona-Sonora Agribusiness Stud9: Overall Surve9 Results

Overall, survey results indicate that agribusiness firms' own research and development, land grant universities (e.g., University of Arizona), and governmental agencies as the three most important sources of technical assistance/information. ttowever, 30 percent of participants indicated that the present agricultural research information available for the Region is either deficient or has little relevance to their needs. Another 41 percent said that present agricultural research information is adequate only for some of the commodities of interest to them. Thus, there appears to be a greater demand for well organized research information targeted at local agribusiness activities and efforts should be made to meet this demand.

Figure 8.1 b gives the effects of NAFTA and the 1994 peso devaluation on survey participants. Although it is difficult to untangle the effects of the 1994 Mexican economic crisis and NAFTA, about 20 percent of Arizona and Sonora participants indicated that NAFTA negatively affected their profits. About 40 (45) percent of Arizona (Sonora) participants indicted that the 1994 peso devaluation had a negative effect on their profits. 40 percent of Sonora participants said that the peso devaluation was good for them, mainly due to increased exports to the US.

Figure 8'.lb. Survey Results: How has NAFTA and the 1994 Devaluation of the Peso Affected Your Profits?

80%-----------------;.========================..----,

70%

60%

50%

40%

30%

20%

10%

0% Negative Impact

No Impact

Positive Impact

• Arizona Respondents

~ Sonora Respondents

94 Peso Devalution's Impact on Profit

Negative Impact

No Impact

Positive Impact

Arizona-Sonora Agribusiness Study: Overall Survey Results

Figure 8.1 c describes how trade and foreign business activities have changed for Arizona respondents from five years ago. An overwhelming majority indicated growth for export sales (57%), buying inputs from a foreign country (60%), and producing goods in a foreign country (7.3%). Arizona's food processing individuals reported more growth for all three of these activities than any of the other sectors. 9.3 percent reported an increase in export sales, 82 percent had an increase in buying foreign inputs, and I 00 percent indicated that their production of goods in a foreign country has increased. Clearly, trade is more important for agribusiness today than it has been in the past.

Figure 8'.lc. Survey Results: If you have ever traded or done business in any foreign country (including Mexico), how have these activities changed from

percent of Arizona respondents

five years ago to the present?

100% --,---,.,....,. ....... ,........'""""'"".,...........------.....,... .................................... ----- ............... ~ ............... ---.

90%

80%

70%

60%

50%

40%

.30%

20%

10%

0%-t---

Export Sales

~

• •

8.2 Perceptions and Implications

Buying Foreign Inputs Producing Goods Abroad

This section summarizes participants perceptions regarding NAITA, the Sonora-Arizona region and actions that can be taken to help enhance the Region's agribusiness sector.

Respondents were asked to contrast trade and/or service transactions with Mexico to other countries. Of the 29 Arizona respondents who did business with both Mexico and other foreign countries, about .35 percent indicated that, in general, it is more difficult to do business in Mexico compared to other countries. 45 percent of Arizona's


respondents that have done business with multiple countries indicated that overall paperwork is more burdensome in Mexico than other countries. 43 percent indicated that receiving/securing timely payments for goods shipped is more difficult in Mexico compared to other countries. 35 percent indicated that it is more difficult to find adequate transportation and shipping services in transactions with Mexico relative to other countries.

Some of the main reasons Arizona respondents cited for not currently doing business in Mexico are lack of information and contacts. There is also a general apprehension regarding instability of the peso and legal security. Some indicated that as the Mexican economy grows stronger in future, demand for their high value products should increase.

51 percent of Arizona participants agreed that phytosanitary requirements at the border are more political than scientifically based with only 12 percent disagreeing (37 percent had no opinion). Thus among agribusiness individuals, there is a general consensus that phytosanitary conditions are political and should be put on a more scientific basis. It should also be pointed out that the results could be different if consumer advocacy groups were included in the study.

Reduced barriers at the border may present opportunities for Arizona agribusinesses to diversify risk by expanding to Sonora and the rest of Mexico. 60 percent of crop sector respondents and 88 percent of the respondents in finance and marketing said that different geographic regions of production are important for reducing risk to their organization. Different geographic regions also present opportunities to reduce risk by inter-seasonal diversification. 56 percent of crop producers and 78 percent of finance and marketing individuals said that such opportunities are important to their organizations. Thus, survey results indicate that enhanced opportunities for risk reduction exist by cross border expansion. Efforts should be made to highlight these important opportunities to agribusiness individuals on both sides of the border.

Figure 8.2a presents respondents perceptions of trade and NAFTA. More than 70 percent of participants in both states felt that compared to today, foreign trade will be more important to their business in five years. Only less than 3 percent of all participants indicated that foreign trade will be less important in future. This overwhelmingly indicates that Arizona-Sonora trade linkages should be brought to the forefront of any discussions related to agribusiness.

Figure 8.2a also shows participants perceived effects of a fully implemented NAFTA in five years. About 21 (17) percent of surveyed Arizona (Sonora) individuals believe that NAFTA will have a negative effect on their business. Although more agribusinesses believe that NAFTA will positively increase profits in five years, the belief is much stronger in Sonora than in Arizona - as high as 69 percent of Sonora respondents believe that NAFTA will increase their profits in five years.

Perceptions are also solicited on how agribusinesses in both states view the other state and nation as an agribusiness partner. Figure 8.2b summarizes participants' perceptions regarding how they view the other state and country. Although NAFTA promotes opportunities for partnerships across borders, it is likely that competition will stiffen in some sectors due to NAFTA. Strength of perceptions in figure 8.2b are measured on a scale of -2 to 2 with -2 indicating strong disagreement and 2 indicating strong agreement.

Arizona-Sonora Agribusiness Study: Overall Survey Results:

Figure 8'.Za. Survey Results: Perceived Impacts of a fully Implemented NAFTA and Importance of Trade to Business in S Years?

90%-.------------------------------

80%

70%

60%

50%

40%

.30%

20%

10%

0%

Impact of NAFTA in 5 Years

Negative Impact

Importance of Trade in 5 Years

• Arizona Respondents

~ Sonora Respondents

Less Same Important

More Important

Figure 8'.Zb Survey Results: Which of the Following Reflects Your Views of Sonora (Arizona) and the Rest of Mexico (USA) for Your Business?

Sonora (Arizona) is a potential or expanding market.

The rest of Mexico (USA) is a potential or expanding market.

Sonora (Arizona) is a competitor for my business. '

L.<.."""'""4

The rest of Mexico (USA) is a competitor for my business.

Agribusiness opportunities are better in Sonora (Arizona) than

the rest of Mexico (USA).

-2 Strongly Disagree

-1 0 No

Opinion

Arizona Respondents

(Sonora) Respondents

1 2 Strongly

Agree


When asked if Sonora is a potential or expanding market, Arizona participants replied with an average score of 1.4 (on -2 to 2 scale). Similarly, with an average score of 1.4, Arizona participants thought that the rest of Mexico is also a potential or expanding market. From a statistical point of view, these average scores of 1.4 are significantly different from zero indicating that Arizona participants agree that Sonora and Mexico in general is a potential or expanding market. When asked if they viewed Sonora and the rest of Mexico as a competitor for their business, the average score was -0.2 and -0.3, respectively. Although not noticeably different from zero, these results do indicate that Arizona respondents overall favorably view Sonora and the rest of Mexico.

Sonoran participants also expressed similar views about Arizona and the US in general. Thus, results in Figures 8.2b indicate that survey participants from both states strongly believe that each others state and country is a potential or expanding market. Furthermore, there is little consensus or support for the popular notion that agribusinesses in Arizona and Sonora are direct competitors with one another.

Finally, participants were given a list of 20 action items as a means for expanding the Arizona-Sonora region's agribusiness industry and were asked to evaluate each item (see Appendices A and C, questions 36 and 37 for exact wording and details). Results are summarized in figure 8.2c.

Figure 8.2c gives the percent of Arizona (on horizontal axis) and Sonora (on vertical axis) respondents that gave a favorable evaluation for a given item. The 20 items evaluated are listed at the bottom of the figure. The evaluations are presented as a scatter plot to highlight which of the items were most favorably rated by Arizona and Sonora. Each letter in the scatter plot indicates an item listed at the bottom. Items to the right have a higher favorable ratings by Arizona participants while items to the top

· have a higher favorable ratings by Sonora. An item close to the Northeast corner in the figure indicates a favorable rating by both Arizona and Sonora.

Results indicate that item j (streamlining border crossing formalities for products) received the most favorable rating by both Arizona and Sonora. As high as 96 percent of Sonora participants and 88 percent of Arizona participants thought that 'streamlining border crossing formalities for products' is an important area to be considered for enhancing the Region's agribusiness potential. This is the only item that received over an 85 percent favorable rating for both sides.

Other items that received over a 7 5 percent favorable rating by both sides were unifying standards and grading (item f), improving Sonora's transportation and communication infrastructure (item e), developing better financing strategies/legal agreements (item s), and forming a bilingual regional agency as a place to go for current regulations specific to agriculture.

Item c, legal agreements that offer enforcement of contracts between Arizona and Sonora individuals, was ranked as the second most important issue overall by Arizona participants (84 percent). This was especially true among finance and marketing individuals who ranked this as a top priority item. Relatively fewer Sonoran participants (72 percent) rated legal agreements as an important issue. This may reflect that Sonoran agribusinesses feel more comfortable about the US legal system than Arizonans feel about the legal system in Sonora. Actually, only two other issues, s (develop better financing strategies/legal agreements) and d (property rights and foreign land owner-


Figure E:2c. Survey Results: Percent of Arizona and Sonora Respondents that were Favorable to the Items Listed as a Means for Enhancing AZ-SO Agribusiness.

Percent of Arizona Respondents that Were Favorable 20% .30% 40% 50% 60% 70% 80% 90% 100%

100%

h g e j f

q 90% I

0 m

k ---

n 80% r

C 70%

60%

t a p

50%

ct b 40%

.30%

.._ ______________________________ .._ 20%

Areas for Enhancing AZ-SO Agribusiness a. Better development of infrastructure to port of Guaymas. b. Development of regional international airport at Yuma. c. Legal agreements that offer enforcement of contracts. d. Property right / foreign land ownership issues in Sonora. e. Improvements In transportation and communication Infrastructure in Sonora. f. Unifled standards and grading. g. Working together to Impact federal legislation in D.C. and Mexico City. h. Developing more value-added products. i. Annual trade show focused toward Arizona and Sonora agribusiness. j. Streamlining border crossing formalities for products. k. Streamlining border crossing formalities for individuals. I. Bilingual Regional Agency (BRA) as a place to go for dispute resolution. m. BRA to act as a facilitator/clearinghouse to establish trade lead contacts. n. BRA to provide a listing source for translation providers and services. o. BRA to give current regulations specific to agriculture. p. Develop better year round supply of perishable products. q. Pursue joint production/marketing ventures. r. Take advantage of economies of size opportunities. s. Develop better financing strategies/legal agreements. t. Develop a common brand label for the region.

~ (i ~ ::::s ..... 0 '""" Cf) 0 ::::s 0 @

~ Cl)

"O 0 ::::s Q. ~ ::::s ..... Cl)

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ship issues in Sonora), were rated more important by Arizona than Sonora agribusinesses (these are items below the dashed 45 degree line in the graph). Thus, Arizona participants strongly feel that legal issues related to contract enforcement and property ownership rights are of utmost importance for doing business in Sonora.

Interestingly, item i (annual trade shows focused toward Arizona and Sonora agribusiness) received much greater support in Sonora (92 percent) than in Arizona (53 percent). Please see pages C-16 through C-21 (Appendix C) for more information on how Sonora and Arizona respondents rated these items by crop, livestock, food processing, and finance and marketing sectors. Also, Arizona responses are ranked for each sector on page C-20.


Arizona-Sonora Agribusiness Study: Key Findings and Recommendations

Chapter 9

Key Findings and Recommendations

Drawing on the results presented in previous chapters, we present key findings and recommendations for enhancing the Arizona-Sonora region's agribusiness sector. Some of the most noteworthy findings of the study are highlighted below.

9. I Key Findings

• Global trends and survey results indicate that the agribusiness sector is becoming more global in scope and form. 72 and 74 percent of Sonora and Arizona respondents, respectively, feel that trade will be more important to their business in 5 years than it is today. Only 3 percent of Sonora respondents and 2 percent of Arizona respondents felt that trade will be less important to their business five years from now. Furthermore, 69 percent of Sonora and 48 percent of Arizona respondents feel that NAITA will have a positive impact on their profits in 5 years. The Region's agribusiness dynamics are strongly influenced and shaped by global trends such as the opening and globalization of markets, information and communication technology, transportation innovations, and shifts in dietary and consumption patterns. Protectionism in agriculture still remains, particularly under the form of non-tariff trade barriers, but protection is diminishing across most international borders.

• Transborder linkages within the Region's agribusiness sector indicate that production agents and marketing firms are perhaps the most developed of all economic sectors in the Region. Agribusiness represents a prime example of the functioning of a complex transborder system and network, mainly driven by private agents and firms. The level of integration comprises all phases of the economic cluster: labor-resource integration (factor conditions), trade-marketing (demand conditions), technical-production (related and supporting industries), and capital-investment (firm strategy, structure, and rivalry). Nogales is arguably the most important gateway for agribusiness trade flows between Mexico and the US. Estimates indicate that about 25 percent of the total US consumption of winter produce is

Arizona-Sonora Agribusiness Study: I<ey Findings and Recommendations

trucked through Nogales from Mexico, representing around 60 percent of total US imports of horticultural products from Mexico.

• Technical assistance and input trade for Arizona has Increased with Sonora while it has declined with the rest of Mexico. 14 percent of Arizona respondents purchased production inputs or received technical assistance from Sonora In the last 4 to 10 years and this increased to 20 percent for the last 3 years. Whereas, with respect to the rest of Mexico, 11 percent of Arizona respondents indicated they received technical assistance or purchased production inputs from Sonora in the last 4 to IO years and this dropped slightly to 9 percent for the last 3 years.

• Integration, complementarity, and regional specialization has allowed firms to become more competitive. This is particularly evidenced in the crop sector and some segments of the livestock industry. In the crop sector, Sonora imports a wide range of inputs from Arizona like seeds, equipment, machinery and services. At the same time Sonora exports fresh produce and a substantial labor force to Arizona, particularly Yuma. Comparative advantages are also observed in the livestock sector. Sonora exports feeder cattle to Arizona to take advantage of lower feed prices to produce grain fed beef. In turn, Arizona has a cost advantage in sending grain fed meat products back to Sonora. Sonora also imports breeding livestock from the US to upgrade their herds. Arizona's dairy industry exports some dairy products and fresh milk to Sonora and has potential for expansion.

• NAITA was felt to have had a positive impact on profits by 55 percent of Sonora respondents and only 15 percent of Arizona participants. The impact of the 1994 peso devaluation was more divided for Sonora since 39 percent reported a positive impact on profits, 45 percent a negative impact, and 16 percent no impact. 41 percent of Arizona respondents felt the peso devaluation decreased their profits, 50 percent reported no impact, and 8 percent indicated a positive impact.

• Language skills are fairly adequate for in-house translation capabilities. Over 72 percent of Arizona and 77 percent of Sonora participants have someone in their organization that speaks Spanish and English fluently. Survey participants on both sides of the border are well aware of the other border state and display aptitude and interest in cross-border agribusiness activities. This is an encouraging sign and speaks well of the Region's agribusiness sector.

• Internet access and communication capabilities of survey participants are quite good. About half of the Arizona-Sonora agribusiness respondents are equipped to take advantage of the latest in information technology and Internet so that this tool may be a good way to disseminate information regarding trading regulations and opportunities. Because the sample is not random but, by design, includes more "agribusiness leaders" and agribusinesses involved with trade, these numbers are high for the average of both states.

• Phytosanitary requirements are more political than scientifically based. 51 percent of Arizona participants agree that phytosanltary requirements at the

Arizona-Sonora Agribusiness Study: I<ey Findings and Recommendations

border are more political than scientifically based with only 12 percent disagreeing (37 percent had no opinion). Thus among agribusiness individuals, there is a general consensus that phytosanitary conditions are political and should be put on a more scientific basis.

• Little consensus was found that Arizona agribusiness firms believe that Sonora or the rest of Mexico are competitors for them. Crop producers from Arizona are the exception. 32 percent of Arizona crop producers strongly agree and another 15 percent agree that Sonora is a competitor for their business. Sonoran agribusinesses do not view Arizona as a competitor for their business but crop and food processing individuals from Sonora view the rest of the US as a competitor for their business.

• Agribusiness opportunities were felt to be better in Sonora than the rest of Mexico by Arizona respondents. Whereas, Sonora respondents felt that agribusiness opportunities were generally better for them in the rest of the US than Arizona. Participants from both states strongly feel that each others states and countries have expanding markets for their business.

• Streamlining border crossing formalities and minimizing delays at the border were ranked as the most important issue to be addressed for promoting regional agribusiness on both sides of the border. Crop and food processing individuals most strongly voiced this concern.

• Legal agreements that offer enforcement of contracts between Arizona and Sonora individuals are of utmost importance for capital to flow from Arizona to Sonora. A PACA-type legal agreement is essential for enhanced produce flow into Mexico. Understandably, cross-border legal issues are more important for Arizona agribusiness than Sonora's.

• Unified standards and grades were strongly suggested as a necessity for Sonoran agricultural products. Arizonan participants also agree that a USDA type of certification is needed for US consumers to accept products from Mexico.

• Loan defaults and the inability of creditors to secure property in Sonora greatly restricts credit flows from Arizona to Sonora. Better communication and technology transfer between universities and industry could be one of the better long-term strategies available for attracting more capital to the Region since companies that work closely with universities earn a higher rate of return than their counterparts.

• Sonoran transportation and cooling infrastructure is lacking. Sonora and Arizona respondents ranked improvements in transportation and communication infrastructure near the top for enhancing agribusiness in the Region. As trade and regional joint ventures increase, inadequacy of Sonoran infrastructure will be a limiting factor for regional agribusiness development.

• Statistical information is unavailable to make equal comparisons with Arizona and Sonora. Statistical information about Sonoran agriculture and agribusiness is inadequate, inconsistent and difficult to access. Sonora's


agricultural statistic personnel at the higher level are politically appointed. Subsequently, political circumstances provide incentives for the inaccurate reporting of information. Lack of information and contacts was cited by Arizona survey participants as a reason for not doing business in Mexico.

9.2 Recommendations

In arriving at the recommendations below, considerable weight was given to the responses of survey participants in both Arizona and Sonora. Many of the recommendations address problems and concerns on both sides of the border.

• Delays and red-tape at the border have been a costly item for agribusinesses moving perishable products and live cattle across the border. We recommend that border crossing formalities for products be streamlined, especially for custom procedures. This should be a top priority in any agenda for promoting Arizona-Sonora agribusiness. Survey participants in crop and food processing sectors on both sides of the border ranked this as the single most important issue to be addressed for promoting regional agribusiness. We recommend a speedy completion of the unified port management project which brings full modernization to border points of entry.

• Legal issues related to contract enforcement and property ownership rights in Sonora are important for Arizona and Sonora joint venture and investment activities. For the produce industry, a Perishable Agricultural Commodities Act (PACA) system in Sonora would alleviate many concerns and risks related to payments and dispute settlement. Efforts should be made to develop a legal system that offers enforcement of contracts between Arizona and Sonora individuals with appropriate fl. nancial consequences.

Similarly, A Bilingual Regional Agency (BRA) could offer a certified trading license for legal contracts made between Arizona and Sonora agribusinesses. A bond license would be required for individuals to attain a certified trading license. The program would be voluntary and should have at least three different levels of bond required, depending on the amount of their trade transaction(s). Individuals would lose their bond money and good standing with the BRA if they did not fulfill all contracts and agreements made in accordance with BRA guidelines. All BRA members will have the right to know the history and current standing of past and current members. The BRA would provide some compensation to the damaged party in a timely manner using bond moneys.

Loan default is a serious problem in Sonora. Legal arrangements need to be made so that rights of ownership and property liens can be settled in a fair and timely manner before capital and products will flow easily from Arizona to Sonora.


• Efforts should be made to unify or mutually recognize standards and grading. This was rated as one of the most important issues by survey participants on both sides of the border. Grading issues currently limit Arizona beef product exports to Sonora and Mexico. Unified standards and grades were strongly suggested as a necessity for Sonoran agricultural products. Arizona participants also agreed that a USDA type of certification was needed for US consumers to accept products from Mexico. Unified Hazard Analysis Critical Control Point (HACCP) procedures will assure US consumers that products from Sonora are safe.

• Complementarities between Sonora's feeder industry and Arizona's feedlots should be enhanced by seeking APHIS approval for the "pilot project" of feeding intact heifers from Sonora. Procedures and language for the "in-bond" feeding program prior to NAFTA should be followed. Working together to impact federal legislation in Washington D.C. and Mexico City was favorably rated by over 70 percent of Arizona and Sonora respondents.

• As trade and regional joint ventures increase, inadequacy of Sonoran infrastructure will present itself as a bottleneck for regional agribusiness development. Capital investment for improving Sonoran transportation infrastructure and cooling facilities is necessary for the Arizona-Sonora agribusiness to grow in the long-run. An improvement in the Sonoran rail and road transportation infrastructure is essential for the Guaymas port to be a viable outlet for Arizona exports abroad.

• Lack of information and contacts was cited by survey participants as one of the reasons for not doing business in Mexico. We recommend that a directory of producers, intermediaries, government trade and legal agencies, university faculty, financiers, brokers and sellers associated with agribusiness in Arizona and Sonora be published. Such a directory would be very helpful for agribusiness firms and policy makers on both sides of the border. More information sources for regulations specific to agriculture was highly rated by both states. The directory could be available on a World Wide Web site and/or published in print format. About half of the survey participants indicated they have access to the Internet, so the WWW could be an effective method for disseminating this information.

• Survey results indicate that long-standing relationships based on trust are essential for a strong business environment. The strong linkages that already exist between Arizona and Sonora can be considered Arizona's comparative advantage over other states in the rush to trade with Mexico. Building on these linkages, Arizona can use Sonora as a gateway to the rest of Mexico. To this end, we recommend that Arizona businesses make every effort to explore Sonora. Activities we recommend to improve relationships include: small groups of 3 to 5 individuals from both Sonora and Arizona with mutual interests to visit operations across the border; commodity group delegations with an


identified production, trade, policy, or educational theme; and the directory mentioned earlier. These tools will provide better opportunities for face to face interaction and an understanding of the business atmosphere for cross-border agribusiness activities. These steps and others that facilitate interaction, will improve Arizona's position for future involvement in Sonora and the rest of Mexico. The Arizona-Mexico Commission could be the best organization to help coordinate and facilitate these visits and the directory.

• We recommend better communication and technology transfer between universities and industry since companies that utilize university resources have higher rates of productivity than their counterparts. University faculty should be included as a part of the small group visits, commodity group delegations, and the directory mentioned above.

• We recommend that a more coherent and consistent statistical database for Arizona-Sonora agriculture be developed and that Sonora remove all "political bias" incentives from their data collection and reporting procedures. Lack of adequate information was noted as a reason for not investing in Mexico. A consistent and politically unbiased database could be modeled after the annual publication, Arizona Agricultural Statistics. As we started working on this project, it became very clear to us that comparable statistical information about Arizona and Sonora agribusiness is difficult to obtain. An exchange of agricultural statistics workers may help facilitate consistency between Arizona and Sonora data series. A more unified database is needed before financial capital can flow with more confidence from investors and entrepreneurs on both sides of the border. Again, the WWW presents itself as an ideal method for disseminating statistical information to agribusiness leaders.

Arizona-Sonora Agribusiness Study: Appendices

Appendix A

Arizona Questionnaire

Arizona-Sonora Agribusiness Stud9: Appendices

Arizona-Sonora Agribusiness Study: Sonoran Questionnaire

College of Agriculture Department of Agricultural and

Resource Economics

Name Organization

Address

Dear Survey Participant,

ARIZONA® TuCSON Aru:zoNA

Economics Building #23 Tucson, Arizona 85721-0023 (520) 621-6241 FAX (520) 621-6250

Feb · April _, 1997

We would like your assistance to help us complete a special Arizona-Sonora Agribusiness Study. The intent of our research is to make a good practical study that will help Arizona's agribusiness sector by exploring agribusiness opportunities with the State of Sonora, Mexico. Researchers from Sonora have helped us develop our methodology and they will do similar research in Sonora so that we will jointly produce one study. Funding for Arizona ls from the Arizona-Mexico Commission and the State of Sonora has funded our Sonoran counterparts. This study is the first of its kind and a starting point so that most issues addressed are more general than commodity specific in nature.

We would greatly appreciate for you to share some of your very busy schedule, valuable time, and needed expertise with us by completing the enclosed questionnaire that is a part of the study. A similar questionnaire is being filled out by individuals like you in Sonora from our counterpart researchers. As a token of our appreciation we will send a complimentary copy of the final report to all individuals who complete the questionnaire. Your responses will be kept strictly confidential and questionnaires will be destroyed after the study is completed.

We request you to FAX (at 520-621-6250) or mail the completed questionnaire to us jn IO days. We will follow-up with phone calls on those we don't hear from. Although the questionnaire can be completed over the phone, I think you will agree that the questionnaire is easier to complete in written form.

Please assist us by giving the names of other individuals/organizations that operate in Arizona and have the experience, knowledge, and expertise appropriate for filling out this questionnaire. Please provide these contacts on the last page of the questionnaire, or on a separate sheet of paper.

Please call us at 520-621-2425 (Russ) or 520-621-6260 (Satheesh) if you have any questions regarding this questionnaire or the study. We look forward to receiving your completed questionnaire soon.

Thank you.

Sincerely,

Russell Tronstad Extension Economist

Enclosure: Questionnaire

Satheesh Aradhyula Assistant Professor

I.

Wha

t ca

tego

ries

belo

w d

escr

ibe

the

orga

niza

tion

and

activ

ities

or

you

r bu

sl n

ess

or e

mpl

oyer

?

Cl

Cl

Cl

Cl

Cl

Cl

Cl

Cl

Cl

Cl

Cl

(ple

ase

chec

k al

l th

at a

pply

) O

man

lrat

lon

S

ingl

e P

rOpr

ieto

rshl

p F

amily

Ow

ned

and

Man

aged

P

artn

ersh

ip

Priv

ate

Com

pany

or

Cor

pora

tion

Join

t V

entu

re

Pub

lic C

orpo

ratio

n C

oope

rativ

e E

duca

tiona

l In

stitu

tion

Com

mod

ity/

Indu

stry

A

ssoc

iatio

n G

ove

rnm

ent

Oth

er _

____

__

_

Act

ivit

ies or o

man

lrat

loo

o

r Sp

edaH

zatl

on

C

l B

anki

ng /

Fin

ance

C

l B

roke

r C

l F

ood

Pro

cess

ing

or V

alue

-Add

ed

Cl

Dai

ry

Cl

Ran

chin

g (c

ow-c

alf

or y

earli

ng)

Cl

Fee

dlot

P

rodu

ctio

n C

l T

ree

or V

ine

Cro

p P

rOdu

ctio

n C

l V

eget

able

Cro

p P

rodu

ctio

n C

l F

ield

Cro

p C

omm

oditi

es

Cl

Pro

duce

War

ehou

sing

C

l O

ther

___

___

_

2.

Wha

t do

you

con

side

r th

e pr

imar

y pr

oduc

ts

or s

ervi

ces

you

prod

uce.

se

ll or

pro

vide

(e

.g.

tabl

e gr

apes

, re

eder

cat

tle.

agric

ultu

ral

oper

atin

g lo

ans)

? a.

b.

C.

d.

e.

CQ

Ml'U

/ffl

CA

TJQ

NS

41

W J

EC

HJ'

IOL

QG

Y·

3.

Do

you

spea

k S

pani

sh?

Cl

nuen

t C

l so

me

4.

Ir y

ou a

re n

ot n

uent

. do

es a

nyon

e In

you

r or

gani

zatio

n sp

eak

Spa

nish

and

Eng

lish

nuen

tly?

Cl

yes

Cl

no

5.

Do

you

reel

tha

t la

ngua

ge I

s a

bigg

er b

arrie

r th

an c

ultu

ral

diffe

renc

es

In t

radi

ng w

ith S

onor

a?

Cl

yes

Cl

sam

e

6.

How

ofte

n do

you

mak

e ph

one

or r

ax c

onne

ctio

ns

to

Mex

ico?

C

l of

ten

Cl

som

e

7.

How

ofte

n to

you

hav

e di

fficu

lty

In m

akin

g de

sire

d te

le•

com

mu

nic

atio

n

con

nec

tio

ns.

C

l of

ten

Cl

som

e

o

no

ne

Cl

no

Cl

neve

r

Q

nev

er

8.

Doe

s yo

ur b

usin

ess

utili

ze c

ompu

ters

? C

l ye

s C

l no

tr

no,

skip

to

# 1

1.

9.

Do

you

or y

our

busi

ness

pe

rson

ally

ut

ilize

the

Int

erne

t ro

r e-

mai

l or

acc

essi

ng l

nror

mat

lon

on t

he W

orld

Wid

e W

eb?

Cl

yes

Cl

no

Cl

don'

t kn

ow

Io.

Wha

t Is

the

las

t co

mpu

ter

your

bus

ines

s pu

rcha

sed

and

whe

n w

as t

his

purc

hase

? T

ype

(e.g

.. 2

86 P

C. P

entiu

m,

Pow

erP

C) _

____

__

purc

hase

da

te (

mo.

/yr.

) __

_ _

I 1.

H

ow w

ould

yo

u ev

alua

te

the

curr

ent

cool

ing

Infr

astr

uctu

re

In M

exic

o?

Ade

quat

e D

on't

know

or

no o

pini

on

Nee

ds I

mpr

ovem

ent

12.

Wha

t ty

pe o

r Ir

rigat

ion

syst

ems

do y

ou u

se (

plea

se c

heck

all

that

app

ly)?

SWU

n:a

Bes

t of M

exic

o C

l C

l C

l

Cl

Cl

Cl

Cl n

ood

Cl d

rip

Cl s

prin

kle

Cl o

ther

____

_ C

l non

e or

not

app

licab

le

Th

e u~

of

Ari

oona

•

Col

lege

of A

gr!c

ultu

N!

• D

epor

tmen

t of A

gric

u!b,

ral

and

Re.

:our

ce Sco

nom

ics

Pag

e I

of a

13.

Wha

t ar

e th

e ~ m

ost

utili

zed

sour

ces

or t

echn

ical

as

slst

ance

/lnro

rmat

lon

ror

your

org

aniz

atio

n?

Cl

Ow

n R

esea

rch

and

Dev

elop

men

t (R

&:D

) C

l G

ovt.

Age

ncie

s C

l La

nd G

rant

Uni

vers

ities

C

l O

ther

Uni

vers

ities

Cl

R&

:D o

r D

omes

tic

Com

petit

ors

Cl

R&

:D o

r F

orei

gn C

ompe

titor

s C

l C

omm

odity

A

ssoc

iatio

ns

Cl

Priv

ate

Con

sulta

nts

Cl

For

eign

Ins

titut

ions

C

l O

ther

___

____

___

_

14.

How

wou

ld

you

eval

uate

th

e pr

esen

t ag

ricul

tura

l re

sear

ch I

nfor

mat

ion

deve

lope

d ro

r yo

ur r

egio

n?

Cl A

dequ

ate

Cl A

dequ

ate

ror

som

e co

mm

oditi

es

Cl D

ende

nt

Cl U

ttle

rele

vanc

e to

loc

al n

eeds

C

l Oth

er _

____

_ _

WE

A,T

HE

R

A,r

1Q B

ISK

;

15.

How

muc

h do

es w

eath

er

Impa

ct

the

prof

itabi

lity

or y

our

orga

niza

tion?

Cl

none

C

l lit

tle

Cl

som

e C

l gr

eatly

I 6.

Is h

isto

rical

w

eath

er

data

(da

lly m

ax./m

ln.

tem

pera

ture

an

d ra

inra

n da

ta)

aval

labl

e ro

r yo

ur

loca

l ge

ogra

phic

ar

ea o

r In

tere

st?

Cl

yes

Cl

no

Cl

don'

t kn

ow

17.

Whe

n do

you

gen

eral

ly s

ell,

cont

ract

. or

ror

war

d pr

ice

your

pro

duct

s?

Alte

r ha

rves

t/shi

pmen

t A

t ha

rves

t/shi

pmen

t Le

ss t

han

one

mon

th

prio

r to

har

vest

/shi

pmen

t I

to 2

mon

ths

prio

r to

har

vest

/shi

pmen

t 2

to 6

mon

ths

prio

r to

har

vest

/shi

pmen

t 6

mon

ths

or m

ore

prio

r to

har

vest

/shi

pmen

t

% o

f Tot

al P

rodu

cts

%

%

%

%

%

-%

to

tal

-10

0%

18.

How

Im

port

ant

are

diffe

rent

ge

ogra

phic

re

gion

s or

pro

duct

ion

ror

redu

cing

ris

k to

you

r or

gani

zatio

n w

hen

~

.tlo.

.tl

o.t

IIIl

llm1a

n.t

.Qul

nlon

II

Illlm

1an.

t th

e re

gion

s ha

ve t

he s

ame

harv

est/s

hipp

ing

perio

d?

Cl

Cl

Cl

Cl

Cl

the

regi

ons

have

a d

iffer

ent

harv

est/s

hipp

ing

perio

d?

Cl

Cl

Cl

Cl

Cl

a ne

w r

egio

n al

low

s ro

r th

e ex

pans

ion

or a

noth

er

prod

uct?

C

l C

l C

l C

l C

l

19.

Wha

t ar

e th

e tw

o gr

eate

st r

isk

fact

ors

or u

ncer

tain

ties

that

you

r or

gani

zatio

n ra

ces?

Cl

Fro

st

Cl

Reg

ulat

ions

C

l D

roug

ht/h

eat

stre

ss

Cl

Out

put

pric

es

Cl

Hal

l C

l In

put

pric

es

Cl

Dis

ease

s C

l In

tere

st r

ates

C

l In

sect

s C

l E

xcha

nge

rate

C

l P

aym

ent

dera

ult

Cl

Oth

er _

____

____

_ _

20.

Are

you

con

cern

ed

abou

t ru

ture

dev

alua

tions

or

the

pes

o ro

r yo

ur b

usin

ess?

C

l ye

s C

l no

21.

Hav

e yo

u co

nsid

ered

us

ing

the

Mex

ican

Pes

o F

utur

es o

n th

e C

hica

go M

erca

ntile

Exc

hang

e as

a w

ay

to m

anag

e ex

chan

ge

rate

ris

k?

Cl

yes

Cl

no

Cl

not

appl

icab

le

Pag

e 2 o

rs

;i;-

;· 0 i I ti) I '§. r ~-

Ill

Ill ~ t ti) 0 ::,

~ ~ f m

~

5· g i;

· m

TR

AD

E JS

SUE

S f f

Al'I

ILI.

\BII

f WIT

H SO

NO

RA

AI'

fl> M

EX

JCQ

;

22.

Hav

e yo

u ex

port

ed/Im

port

ed

any

of

your

pr

oduc

ts

dire

ctly

or

th

roug

h a

seco

nd

hand

ler

(e.g

. br

oker

) to

S

onor

a?

• ye

s •

no

rest

of

Mex

ico?

•

yes

• no

an

y ot

her

fore

ign

coun

try?

•

yes

• no

23.

Hav

e yo

u ev

er v

isite

d S

onor

a •

yes

• no

as

a t

ouris

t?

for

busi

ness

? •

yes

• no

U

no

, sk

ip t

o #2

6.

24.

Did

you

vis

it a

sim

ilar

oper

atio

n to

you

rs?

• ye

s •

no

25.

Was

the

visi

t to

con

side

r/an

alyz

e th

e po

ssib

ility

of

exp

ortin

g or

for

min

g a

join

t ve

ntur

e In

Son

ora?

•

yes

•no

26.

Has

the

lac

k of

a P

AC

A (P

eris

habl

e A

gric

ultu

ral

Com

mod

ities

A

ct)

or s

imila

r ag

reem

ent

for

othe

r pr

oduc

ts

kept

you

r le

vel

of t

rade

with

Mex

ico

low

er t

han

It w

ould

oth

erw

ise

be?

• ye

s •

don'

t kn

ow o

r no

opi

nion

•

no

27.

com

pare

d to

tod

ay,

how

Im

port

ant

do y

ou e

xpec

t tr

ade

will

be

to

your

bus

ines

s In

5 y

ears

? •

less

•

sam

e •

mo

re

Neg

ativ

e N

o P

ositi

ve

.imJ2

ll.!:t

. .im

J2ll.

!:t.

.imJ2

ll.!:t

. 28

. H

ow h

as N

AfT

A a

ffect

ed y

our

pron

ts?

• •

• •

• 29

. W

hat

impa

ct d

o yo

u ex

pect

a m

ore

fully

im

plem

ente

d N

AF

TA

to h

ave

on y

our

pron

ts I

n 5

year

s?

• •

• •

• 30

. H

ow h

as th

e 19

94 d

eval

uatio

n of

the

pes

o af

fect

ed

your

pro

nts?

•

• •

• •

31.

In w

hat

way

s di

d N

AfT

A I

mpa

ct y

our

busi

ness

and

wha

t ad

ditio

nal

effe

cts

do y

ou f

ores

ee f

or y

our

busi

ness

whe

n N

AfT

A I

s fu

lly I

mpl

emen

ted?

32.

In w

hat

way

s di

d th

e 19

94 d

eval

uatio

n of

the

pes

o af

fect

you

r op

erat

ion

or b

usin

ess?

33.

Hav

e yo

u ev

er p

urch

ased

any

pro

duct

ion

Inpu

ts

(e.g

.• s

eeds

. br

eedi

ng

lives

tock

. et

c.)

or r

ecei

ved

tech

nica

l as

sist

ance

fro

m M

exic

o In

the

las

t

3 ye

ars?

4

to

Io y

ears

?

~

•ye

s •

no

•ye

s •

no

Res

t or M

exic

o

•ye

s •

no

•ye

s •

no

34.

If yo

u ha

ve e

ver

trad

ed o

r do

ne b

usin

ess

In a

ny f

orei

gn c

ount

ry (

Incl

udin

g M

exic

o).

wha

t pe

rcen

tage

of

you

r bu

sine

ss I

s m

ade

from

selli

ng I

n th

e ex

port

m

arke

t?

buyi

ng I

nput

s fr

om a

for

eign

cou

ntry

? pr

oduc

ing

good

s In

a f

orei

gn c

ount

ry?

5 Y

ears

Aao

__

%

__

%

__

%

~

__

%

__

%

__

%

The

Un~

af

Ari

zon

a •

CoD

ege a

f Agr

ic:u

ltuN

! •

D-

af J

19ri

cu!t

ural

an

d R

eoou

rce B

cono

mlc

• P

age

.J, o

f 8

fEB

CE

PJJ

Qrl

S·

35.

Are

pro

duct

ion

prac

tices

diff

eren

t In

Mex

ico

than

the

US

rega

rdin

g th

e qu

antit

ies

used

of

the

follo

w

ing

Inpu

ts:

MX

M

X

No

l&ss

. ~

tllw

:.

.QJl

lnllm

pe

stic

ides

•

• •

• he

rbic

ides

•

• •

• fu

ngic

ides

•

• •

• gr

owth

re

gula

tors

/hor

mon

es

• •

• •

vacc

inat

ions

•

• •

•

36.

Ple

ase

Indi

cate

the

Im

port

ance

of

the

fol

low

ing

area

s yo

u th

ink

shou

ld

be c

onsi

dere

d to

enh

ance

A

rizon

a an

d S

onor

a's

pote

ntia

l as

an

agrib

usin

ess

Indu

stry

?

Ver

y N

o N

ot

l1Im

!>.tt

i!nt

.QJl

lnllm

l1

Im!>

.tti!n

t B

ette

r de

velo

pmen

t of

Inf

rast

ruct

ure

to p

ort

of O

uaym

as.

• •

• •

• D

evel

opm

ent

of a

reg

iona

l In

tern

atio

nal

airp

ort

at Y

uma

to f

acili

tate

tr

ansp

orta

tion

of p

eris

habl

e pr

oduc

ts.

• •

• •

• Le

gal a

gree

men

ts t

hat

offe

r en

forc

emen

t of

con

trac

ts

betw

een

Ariz

ona

and

Son

ora

Indi

vidu

als.

•

• •

• •

Pro

pert

y rig

ht/

fore

ign

land

ow

ners

hip

Issu

es In

Son

ora.

•

• •

• •

Impr

ovem

ents

In

tra

nspo

rtat

ion

and

com

mun

icat

ion

Infr

astr

uctu

re

In S

onor

a.

• •

• •

• U

nine

d st

anda

rds

and

grad

ing.

•

• •

• •

Wor

king

tog

ethe

r to

im

pact

fe

dera

l le

gisl

atio

n In

Was

hing

ton

D.C

. and

Mex

ico

City

. •

• •

• •

Dev

elop

ing

and

prod

ucin

g m

ore

valu

e-ad

ded

prod

ucts

. •

• •

• •

Ann

ual

trad

e sh

ow f

ocus

ed

tow

ard

Ariz

ona

and

Son

ora

Agr

ibus

ines

s.

• •

• •

• S

trea

mlin

ing

bord

er c

ross

ing

form

aliti

es

for

prod

ucts

. •

• •

• •

Str

eam

linin

g bo

rder

cro

ssin

g fo

rmal

ities

fo

r in

divi

dual

s.

• •

• •

• ot

her

• •

• •

• B

Iiing

uai

regi

onal

age

ncy

as a

pla

ce t

o go

for

+

disp

ute

reso

lutio

n.

• •

• •

• +

fa

cilit

ator

/cl

earin

ghou

se

to e

stab

lish

trad

e le

ad

cont

acts

. •

• •

• •

+

listin

g so

urce

for

tra

nsla

tion

prov

ider

s an

d se

rvic

es,

• •

• •

• +

cu

rren

t re

gula

tions

sp

ecm

c to

agr

icul

ture

. •

• •

• •

3 7.

D

o yo

u th

ink

that

Ariz

ona

and

Son

ora

can

bette

r de

velo

p m

arke

ts o

utsi

de

the

regi

on f

or p

rodu

cts

grow

n or

pro

cess

ed b

y

deve

lopi

ng

a be

tter

year

rou

nd s

uppl

y of

per

isha

ble

prod

ucts

. pu

rsui

ngjo

lnt

prod

uctio

n/

mar

ketin

g ve

ntur

es.

taki

ng a

dvan

tage

of

econ

omie

s of

siz

e op

port

uniti

es.

deve

lopi

ng

bette

r nn

anci

ng s

trat

egie

s/le

gal

agre

emen

ts.

deve

lopi

ng

a co

mm

on

bran

d la

bel

for

the

regi

on.

othe

r __

____

____

____

____

_ .

~

• • • • • •

.uns

:a:ta

ln

J:il2

• •

• •

• •

• •

• •

• •

Pag

e4of

8

s:

N ~ I fl

) 0 ~ i s· (\) tg j fl

) I f ~ 1·

r:;·

(\

)

38.

Whi

ch o

f th

e fo

llow

ing

rene

cts

your

vie

ws

of S

onor

a an

d th

e re

st o

f M

exic

o fo

r yo

ur b

usin

ess?

Str

ongl

y N

o S

tron

gly

&lrl

:i:.

Qlll

nkm

D

.lslW

n:l:.

S

onor

a Is

a p

oten

tial

or e

xpan

ding

m

arke

t. C

l C

l C

l C

l C

l T

he r

est

of M

exic

o Is

a p

oten

tial

or e

xpan

ding

m

arke

t. C

l C

l C

l C

l C

l S

onor

a Is

a c

ompe

titor

fo

r m

y bu

sine

ss.

Cl

Cl

Cl

Cl

Cl

The

res

t of

Mex

ico

Is a

com

petit

or

for

my

busi

ness

. C

l C

l C

l C

l C

l A

grib

usin

ess

oppo

rtun

ities

ar

e be

tter

In S

onor

a th

an.

The

res

t of

Mex

ico.

C

l C

l C

l C

l C

l

39.

Do

you

thin

k It

Is p

ossi

ble

for

Ariz

ona

and

Son

ora

to I

ncre

ase

the

econ

omic

vi

abili

ty

of t

he r

egio

n's

Agr

ibus

ines

s In

dust

ry

by w

orki

ng

toge

ther

?

Cl

yes

Cl

som

e se

ctor

s C

l no

Str

ongl

y N

o S

tron

gly

40.

Foo

d pr

oduc

ts

proc

esse

d In

Mex

ico

&lrl

:i:.

.Qw

niQ

n D

.lslW

n:l:.

ut

ilize

th

e sa

me

proc

essi

ng

tech

nolo

gy

as I

n th

e U

S?

Cl

Cl

Cl

Cl

Cl

unde

rgo

the

sam

e fo

od s

afet

y pr

ecau

tions

as

In

the

US

? C

l C

l C

l C

l C

l ne

ed F

DA

or

US

DA

cer

tlnca

tlon

to b

e ac

cept

ed

by U

S

cons

umer

s,

even

If

the

proc

essi

ng

tech

nolo

gy

and

safe

ty

prec

autio

ns

are

the

sam

e as

tho

se

used

in

the

US

? C

l C

l C

l C

l C

l

41.

Phy

tosa

nlta

ry

requ

irem

ents

at

the

bor

der

are

mor

e po

litic

al

than

sci

entif

ical

ly

base

d?

Cl

Cl

Cl

Cl

Cl

fIN

AN

Cll'

IQ: If

you

are

no

t In

volv

ed w

ith

llnan

cln

g

or

Inve

stm

ent

acti

viti

es.

skip

to

liv

esto

ck.

#li3

.

42.

Hav

e yo

u ev

er m

ade

any

dire

ct

loan

s or

Inv

este

d In

any

Mex

ican

bus

ines

s ac

tiviti

es?

l2lm

l2£l

l R

est o

f Mex

ico

C

l ye

s C

l no

C

l ye

s C

l no

If y

es,

wha

t ar

e yo

ur b

asic

req

uire

men

ts

for

Mex

ican

loa

ns?

If n

o, w

hy h

ave

you

not

mad

e an

y lo

ans

or I

nves

tmen

ts I

n M

exic

o?

____

____

____

_

LIV

ES

TO

CK

· If

yo

u a

re n

ot

Invo

lved

wit

h liv

esto

ck

pro

du

ctio

n

or

5erv

ices

ski

p t

o #l

i8.

nex

t p

age.

43.

Wha

t ar

e yo

ur p

rimar

y co

ncer

ns

In l

easi

ng p

astu

re t

o S

onor

ans

or s

endi

ng l

ive

cattl

e to

Son

ora

for

graz

ing?

In

dica

te

the

Impo

rtan

ce

of e

ach

conc

ern.

Ver

y ID

mm

:tant

B

rand

reg

istr

atio

n co

ncer

ns.

Cl

Cl

Re-

entr

y ris

k/co

ncer

ns

(e.g

. qu

aran

tine.

le

galit

ies

of o

wne

rshi

p).

Gra

zing

con

trac

t co

ncer

ns

(e.g

.. a

dequ

ate

wat

er,

gras

s,

heal

th c

are)

.

Met

hod

of p

aym

ents

/frau

d.

Ani

mal

he

alth

ris

k In

Son

ora

or h

erd

heal

th r

isk

In A

rizon

a.

Oth

er _

____

____

____

____

_

Cl

Cl

Cl

Cl

Cl

Cl

Cl

Cl

Cl

Cl

No

Qlll

nkm

Cl

Cl

Cl

Cl

Cl

Cl

44.

Hav

e yo

u ev

er s

old

live

cattl

e to

Mex

ico?

C

l S

onor

a C

l re

st o

f M

exic

o

The

Unl

vero

lt,j o

f Ari

sona

•

Col

lege

of A

gric

ultu

re

• D

epar

tmen

t of

Agr

ic:u

ltura

l and

Re.

ou,a

E

cono

tnlc

c

Not

ID

mm

:tant

C

l C

l

Cl

Cl

Cl

Cl

Cl

Cl

Cl

Cl

Cl

Cl

Cl

none

--

-P

age

5 of

8

45.

Hav

e yo

u ev

er s

hipp

ed

live

cattl

e fo

r gr

azin

g to

Son

ora

(I.e

.. r

etai

ned

owne

rshi

p)

with

the

Int

ent

to

retu

rn

them

to

Ariz

ona?

C

l ye

s C

l no

46.

If yo

u ar

e a

feed

lot

oper

ator

, ab

out

wha

t pe

rcen

tage

of

your

fee

der

cattl

e or

igin

ate

from

Son

ora?

5 ye

ars

ago

___

%

last

2 y

ears

__

_ %

4 7.

H

ow d

o S

onor

an

rais

ed c

alve

s pe

rfor

m

rela

tive

to A

rizon

a ra

ised

cal

ves

In A

rizon

a fe

edlo

ts?

Cl

bette

r C

l ab

out

the

sam

e C

l w

orse

C

l do

n't

know

or

no o

pini

on

fOR

Fff

lMS

DO

ffiG

SUS

JNE

SS

WIT

H r

,EX

JCO

; Ir

no

t ap

plic

able

. sk

ip t

o #6

6 o

n p

age

8.

48.

49.

Wha

t ar

e th

e pr

imar

y pr

oduc

ts

your

bus

ines

s ha

s ex

port

ed

to M

exic

o In

the

las

t 3

year

s an

d ab

out

wha

t pe

rcen

tage

do

the

se e

xpor

ts

mak

e of

you

r to

tal

busi

ness

sal

es?

a. ~

Des

tin

atio

n

.'ll2

..0L

S.aJ

J:

b.

c.

d.

e.

Wha

t ar

e th

e m

ain

prod

ucts

or

Inp

uts

your

bus

ines

s ha

s Im

port

ed

from

M

exic

o In

the

las

t 3

year

s an

d ab

out

wha

t pe

rcen

tage

ha

ve t

hese

pro

duct

s m

ade

of y

our

tota

l pr

oduc

ts

purc

hase

d or

gro

wn

(Inc

lude

pr

oduc

ts

grow

n In

Mex

ico)

?

a. ~

b.

C. ~: ==

==

==

==

==

==

-P

oint

or ort

aJn

% o

f In

puts

/ ~

50.

Abo

ut

how

man

y tr

uck

load

s of

you

r pr

oduc

t cr

oss

the

bord

er

ever

y ye

ar?

51.

Whi

ch p

ort

of e

ntry

/exi

t do

you

gen

eral

ly

utili

ze?

____

____

____

____

_ _

52.

Wha

t Is

the

ave

rage

tim

e It

take

s fo

r a

load

of

your

pro

duct

to

cro

ss t

he b

orde

r?

53.

How

ort

en d

o yo

u ex

perie

nce

prob

lem

s In

mov

ing

your

pro

duct

s ac

ross

the

bor

der:

C

l al

way

s C

l fr

eque

ntly

C

l oc

casi

onal

ly

Cl

neve

r C

l not

app

licab

le

If n

ever

or

no

t ap

plic

able

, sk

ip

to #

56.

54.

Wha

t ag

enci

es h

ave

been

mos

t di

fficu

lt to

cle

ar I

n m

ovin

g yo

ur p

rodu

cts

acro

ss t

he b

orde

r?

(e.g

.. C

usto

ms.

F

DA

, AP

HIS

, etc

.)

55.

Wha

t Is

the

lon

gest

del

ay y

ou h

ave

ever

had

In

cros

sing

the

bor

der

with

you

r pr

oduc

ts?

___

_ E

xpla

natio

n/ca

use

for

dela

y?

How

muc

h m

oney

do

you

estim

ate

this

del

ay c

ost

you?

___

____

____

___

_ W

hen

did

this

del

ay o

ccur

(m

onth

an

d ye

ar)

____

____

____

____

___

_

56.

Do

you

have

an

empl

oyee

th

at I

s pr

imar

ily

devo

ted

to t

akin

g ca

re o

f bo

rder

cr

ossi

ngs?

C

l ye

s C

l no

57.

Do

you

use

a br

oker

fo

r yo

ur e

xpor

ts

or I

mpo

rts?

C

l ye

s C

l no

If ab

ove

Is y

es,

wha

t ci

ty a

nd S

tate

Is

your

prim

ary

brok

er l

ocat

ed

In?

Pag

e 6

of 8

! ~ I ~

::,

~

I» i r s·

(l) ~ f $.'

l"/)

I ~

(l) ~ i"

;:;·

(l)

58.

Do

you

have

any

pro

duct

ion,

Jo

int

vent

ure

agre

emen

ts

or s

imila

r ac

tiviti

es

In M

exic

o?

• S

onor

a •

rest

of

Mex

ico

• no

ne

If y

es

for

So

no

ra

or

rest

of

Mex

ico

, ab

out

wha

t pe

rcen

t of

the

fin

anci

ng

has

been

pro

vide

d by

your

org

aniz

atio

n?

savi

ngs

bank

(s)?

pr

ivat

e ba

nk(s

)?

Join

t ve

ntur

e w

ith o

ther

na

tiona

l pa

rtne

r(s)

? Jo

int

vent

ure

with

fo

reig

n pa

rtne

r(s)

? ot

her

____

____

__

?

~

__

%

___

%

___

%

___

%

___

%

___

%

sum

--10

0%

Res

t of M

exic

o

__

%

___

%

__

%

___

%

___

%

___

%

sum

-100

%

59.

How

man

y ·o

wne

rs·

gene

rally

ha

ndle

you

r pr

oduc

t be

fore

It

Is s

old

'abr

oad?

'

60.

In y

our

tran

sact

ions

w

ith

Mex

ico,

wha

t pe

rcen

t of

you

r tr

ansa

ctio

ns

are

mad

e In

US

dol

lars

? w

ho t

akes

the

ris

k of

a p

rice

chan

ge?

who

tak

es a

ny e

xcha

nge

rate

tis

k?

who

tak

es t

he r

isk

of a

load

tha

t do

esn'

t cl

ear

bord

er

Insp

ectio

n?

who

pro

vide

s th

e co

olin

g fa

cilit

ies

(If

nece

ssar

y) I

n M

exic

o?

____

__

%

61.

If y

our

tran

sact

ions

w

ith

Mex

ico

are

mad

e In

pes

os.

how

are

you

r pe

sos

purc

hase

d?

62.

Doe

s yo

ur o

rgan

izat

ion

trad

e or

do

busi

ness

with

cou

ntrie

s ot

her

than

Mex

ico?

•

yes

• no

If y

es,

fill

In w

hat

coun

trie

s an

d sk

ip

to #

64.

a.

____

__

b.

63.

Has

you

r bu

sine

ss e

ver

Inve

stig

ated

do

ing

trad

e or

bus

ines

s w

ith c

ount

ries

othe

r th

an M

exic

o?

• ye

s •

no

If n

o.

skip

to

#65.

If y

es,

wha

t co

untr

ies

did

you

Inve

stig

ate?

a.

b.

64.

How

do

you

cont

rast

tr

ade

or s

ervi

ce t

rans

actio

ns

with

Mex

ico

com

pare

d to

oth

er f

orei

gn c

ount

ries?

MX

Les

s N

o M

X M

ore

mtlk

lllt

lliff

i:rl:l

ll:l

mct

llJilt

findi

ng

adeq

uate

tr

ansp

orta

tion/

ship

ping

se

rvic

es.

• •

• •

• La

belin

g re

quire

men

ts.

• •

• •

• R

ecei

ving

/sec

urin

g tim

ely

paym

ents

fo

r go

ods

ship

ped.

•

• •

• •

Gov

ernm

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Arizona-Sonora Agribusiness Study: Sonoran Questionnaire

Arizona-Sonora Agribusiness Stud'3: Appendices

AppendixB

Sonora Quegtionnaire$

Sonora Questionnaires (in Spanish) are available from authors or can be viewed at authors' home page on the Internet at:

http://ag.arizona.edu/AREC/arechome.html



AppendixC

Questionnaire ReruJtg


Arizona-Sonora Agribusiness Study: Questionnaire Results II --------Appendix C

Questionnaire Results

Questionnaire background information 93 questionnaires were received by Arizona researchers out of 175 sent out. Respondents categorized the primary activities of their organization. Four categories (crops, livestock, food processing, and finance and marketing) were chosen for aggregation. There were 38 respondents in crops, 33 in livestock sector, 21 in food processing and 23 in financing and marketing. Where number of responses is lower than these numbers, some respondents did not answer the question. In some cases organizations placed themselves in multiple categories. Where this was the case their responses have been recorded in both categories. The "Overall" category provides responses of the full sample. Because of the responses in multiple categories, the four category numbers will not add up to the overall numbers.

Sonoran researchers also conducted a survey with questionnaires similar to Arizona questionnaire. Where possible, responses from the Sonoran questionnaires have been added. to provide a contrast to Arizona responses. If a mirror question was asked, parentheses will indicate how the Sonoran questionnaire read. Where the identical question was asked both in Arizona and Sonora, there will be no alterations in the printed question. Sonoran researchers conducted their survey so as to have no overlap between categories, so no overall number is given. They tailored their questionnaires to the target group so in many cases where Sonoran responses are represented, not all four categories will be present. Finally, in many cases, direct comparison was not possible for a variety of reasons.

1. What categories below describe the organization and activities of your business or employer?

Organization: 8!:;;tivities of Organization or Specialization;

Single proprietorship 9% Banking/finance 4% Family owned and managed 32% Broker 4% Partnership 11% Food processing or value-added 13% Private company or 51% Dairy 6% corporation Joint venture 0% Ranching (cow-calf or yearling) 17% Public corporation 3% Feedlot production 9% Cooperative 3% Tree or vine crop production 13% Educational institution 3% Vegetable crop production 13% Commodity /industry 4% Field crop commodities 16% association Government 6% Produce warehousing 3% Other 2% Other 30%

HI Arizona-Sonora Agribusiness Study: Questionnaire Rerults

Responses given under 'Other' Organizations: Chamber of Commerce Trust

Responses given under 'Other' Activities of Organization or Specialization:

Equipment sales Seed production

-• Seed conditioning Herbs Turfgrass production Citrus harvesting Nursery Cereal grain & seed marketing Marketing fruit and vegetables

Marketing, exports Animal health Herd health consulting Ostrich Ostrich meat & leather sales

Livestock marketing Ostrich, process ostrich hides Breed association Breeding reg. cattle Education and research Distributing Premium dry dog and cat food Distributor Service to Fresh Fruit and Vegetable Industry Information Business consultant Distributor Information Transportation

2. What do you consider the primary products or services you produce, sell or provide?

• Durum wheat, cotton, barley, grain sorghum. • Cotton. • Business development, protection of water rights, legislative/regulatory

review, promotion, Education. • Greenhouse agriculture, aquaculture, drip irrigation, plasticulture. • Feed corn. • Farm equipment, new and used, irrigation equipment, rentals, leasing, custom

harvesting. • Citrus, certified alfalfa seed, certified asparagus seed. • Wheat, corn seed. • Vegetable seed, herb seed. • Celery, lettuce, lettuce mix. • Citrus, fresh only. • Seed sales and conditioning, contract seed production. • Specialty vegetables and lettuce, herbs. • Citrus (oranges, lemons, grapefruit, tangelo). • Bermuda grass, alfalfa, coating, conditioning. • Vegetable transplants, flower transplants, citrus seedlings. • Medjool dates. • Citrus. • Grains, cotton, seed alfalfa. • Milk. • Cotton, grains. • Alfalfa, cotton. • Pecans. • Citrus fruit, citrus trees.

Arizona-Sonora Agribusiness Study: Questionnaire Results 11!1!1 -----------• Wine. • Pecans - grower/ processor. • Wheat, Barley, Grain, & Seed - Farming Co. (All field Crops), Produce, cotton,

grains. • Tomatoes, grapes, mangoes, cucumbers, bell peppers. • Cotton, wheat, feed grains. • Leafy vegetables, watermelon, cantaloupe, honeydew, broccoli, carrots. • Tomatoes, grapes, mango, cucumber, bell pepper. • Watermelons, honeydews, hard shell squash. • Vegetables, pecans. • Melons, broccoli, cotton, wheat, citrus. • Grower-shipper-processor/mixed fruit and vegetables/agribusiness consulting

(Intl.).

Livestock • Protection of livestock industry from disease. • Import/export preparation of livestock, herd health consulting, ranch

management services, seedstock selection, livestock, order buying, livestock. • Ostrich meat, leather, feathers, live ostrich. • Ostrich meat, ostrich leather, live ostrich, ostrich eggs. • Feeder cattle. • Alfalfa, ostrich. • Livestock. • Seed stock genetics. • Feeder cattle, fat cattle, registered breeders. • Cattle for slaughter. • Regulate animal production industries in AZ. • Calves, herd bulls. • Custom cattle feeding. • Feeder cattle. • Milk. • Dairy products. • Milk. • Seedstock, cattle , Herefords, Feeder cattle. • Breeding stock, beefmaster. • Fluid milk, cream, butter, nonfat dry milk, lactose. • Cattle. • Registered Brahman and Hereford cattle • Slaughter ready cattle. • Feeder cattle. • Registered breeding stock. • Breeder stock, feeder calves. • Feeder cattle. • Breeding bulls, breeding heifers, beef. • Fed cattle. • Commercial cattle feeding. • Fat cattle. • Lamb, wool. • Eggs, feed, hogs, hay, cattle.

.,,, Arizona-Sonora AgribusineS$ Stud9: Questionnaire Results

Food Processing • Students, information. • Salsas. • Safe food, fewer animal and plant diseases, pests, stronger AZ ag economy. • Beverages. • Manufacture desserts. • tloney, candle making supplies. • Green chili, jalapeno, tomatillo, Sauces (Mex, Italian), Salsa, Bell Pepper,

artichoke . • Wine. • Soft drinks. • Olive oil, artichokes(canned in olive oil), Italian tomatoes. • Processed meat, snack foods. • Pro Pal dry dog and cat foods, Sportmix dog biscuit treats. • Soft-serve frozen dessert products. • Gourmet salsa. • Tomatoes, squashes, peppers, melons, mangoes.

Finance/Marketing

• Business, environment and tax code. • Information, trade contracts, trade education. • Demographics and data, surveys, market studies, feasibility studies. • Promotions, business referrals, community information. • Produce shipments. • Operating loans, term loans, deposit relationships. • Financial services. • Rural development loans and grants. • Vegetable distribution. • Import-export.

3. Do You Speak Spanish (English)?

Fluent Some None Respondents

~rops 0.08 0.61 0.32 .'j3

Crops Sonora 0.36 0.39 0.25 .33 Livestock 0.12 0.64 0.24 .33 Livestock Sonora 0.31 0.23 0.46 13 Food Processing 0.10 0.52 0 . .38 21

Finance/Marketing 0.17 0.48 0.35 23

Arizona Overall 0.12 0.57 0.31 93

Arizona-Sonora Agribusiness Study: Questionnaire Results ~ -----------4. If you are not fluent, does anyone in your organization speak Spanish and English

fluently?

rops .83 .17 .36 rops Sonora 0.5.3 0.46 32 ivestock 0.72 0.28 29 ivestock Sonora 0.78 0.21 14 oodP_r,ocessing 0.58 0.42 19 oodProcessing Sonora l.00 0.00 .33 ·nance/Marketing 0.76 0.24 21 ·zona Overall 0.72 0.28 85

5. Do you feel that language is a bigger barrier than cultural differences in trading with Sonora (Arizona)?

Question for Sonorans*: Do you feel that the language difference is a barrier to trade with Arizona?

Yes Same No Respondents

Crops 0.19 0.19 U.61 .36 Crops Sonora 0 . .31 0.00 0.69 32 Livestock 0.41 0.1.3 0.47 32 Livestock Sonora 0.54 0.00 0.46 1.3 Food Processing 0 . .38 0.24 0 . .38 21 Food Processing Sonora 0.27 0.2.3 0.50 26 Finance/Marketing 0 . .30 0.22 0.48 2.3 Arizona Overall 0 . .3.3 0.20 0.47 00 *Crop & livestock respondents

6. How often do you make phone or fax connections to Mexico (the US)?

vn:en Some Never Respondents

Crops 0 . .37 0 . .34 0.29 .38 Crops Sonora 0 . .36 0 . .39 0.24 .33 Livestock 0.42 0.42 0.15 .33 Livestock Sonora 0.82 0.09 0.09 11 Food Processing 0 . .38 0 . .3.3 0.29 21 Food Processing Sonora 0.82 0.11 0.07 28 Finance/Marketing 0.48 0 . .30 0.22 2.3 Brokers Sonora 0,90 0.10 0.00 2D Arizona Overall 0 . .38 0 . .38 0.25 93

7. How often do you have difficulty in making desired telecommunication connections?

Otten Some Never Responaents

Crops 0.09 0.54 0 . .37 35

Livestock 0.19 0.59 0.22 32 Food Processing 0.14 0.52 0 . .3.3 21 Food Processing Sonora 0.04 0 . .31 0.65 26 Finance/Marketing 0.1.3 0.4.3 0.4.3 2.3 Arizona Overall 0.11 0.5.3 0 . .36 00

unen .::,ome Almost Never Responaents never

Brokers Sonora 0.05 0.25 0.65 0.05 2D

iii Arizona-Sonora Agribusiness Study: Questionnaire Results

8. Does your business utilize computers?

Yes No Respondents

Crops 0.89 0.11 36

Crops Sonora 0.56 0.44 .32 Livestock 0.91 0.09 .33 Livestock Sonora 0.57 0.4.3 14 Food Processing 1.00 0.00 21

Food Processing Sonora 0.96 0.04 2B Finance/Marketing 0.96 0.04 23 Brokers Sonora 1.00 0.00 ~

Arizona Overall 0.94 0.06 93

9. Do you or your business personally utilize the Internet for e-mail or accessing information on the World Wide Web?

Yes No Don't Know Respondents

Crops 0.60 0.40 0.00 .35 Crops Sonora 0.35 0.65 0.00 23

Livestock 0.44 0.56 0.00 32

Livestock Sonora 0.14 0.86 0.00 7 Food Processing 0.52 0.48 0.00 21 Food Processing Sonora 0.64 0.32 0.04 25


Arizona Overall 0.5.3 0.47 0.00 00

10. What was the last computer your business purchased and when was it purchased?

76 of 93 (82%) respondents reported computers. PCs were 65 of the 76 computers mentioned (85%). Macs were 8 of the 76 (11 %). 38 of the 65 PCs were Pentiums (58%, 50% overall) Remainder includes a mainframe and two unrecognized brands.

For 22 respondents, their most recent computer was purchased in 1997. 26 purchased in 1996, while 14 purchased in 1995. Some answers implied continual updating of computer resources

11. How would you evaluate the current cooling infrastructure in Mexico?

Sonora Rest of Mexico

Adequate Don't Needs Respondents Adequate Don't Needs Respondents know Improve- know Improve-

ment ment Crops 0.00 0,75 0,25 32 0.00 0.74 0.26 .31 Livestock 0.10 0.74 0.16 31 0.03 0.80 0.17 30 Food Processing 0.10 0.60 0,30 20 0.00 0.70 0.30 20 Finance/Marketing 0,05 0,55 0.41 22 0.05 0.55 0.40 20 Overall 0.07 0.70 0.23 86 0.02 0.73 0.24 8.3

Arizona-Sonora Agribusiness Study: Questionnaire Results ----------12. What type of irrigation systems do you use? (Crops only, multiple answers)

13.

only flood

some drip

some sprinkle

some of 'other'

some flood

42%

45%

32%

3%

84%

What are the 1E.2 most utilized sources of technical assistance/information for your organization?

Crops Livestock Food Processing

Finance/Marketing Overall

OwnR& D 0.35 0.17 0.44 0.34 0.31

Govt. Agencies 0.11 0.09 0.15 0.20 0.15

Land Grant Univ. 0.20 0.30 0.08 0.05 0.19

other Univ. 0.04 0.06 0.08 0.00 0.05

Foreign Inst. O.Ql 0.00 0.00 0.05 O.Ql

R & D of Domestic Competitors 0.04 0.03 0.10 0.00 0.05

R & D of Foreign Competitors 0.00 0.00 0.00 0.02 0,01

Commodity Associations 0.10 0.14 0.05 0.17 0.10

Private Consultants 0.11 0.18 0.08 0.12 0.12

Other 0.03 0.03 0.03 0.05 0.02

Responses (1 or 2 per 71 66 ~ 41 176 respondent)

14. How would you evaluate the present agricultural research information developed for your region?

Adequate Adequate tor Det1c1ent Little Other Respondents some relevance to

commodities local needs Crops U.:l4 0.45 0.21 0.08 0.03 .38 Livestock 0.30 0.36 0.21 0.09 0.03 .3'3 Food Processing 0.19 0.31 0.31 0.13 0.06 16 Finance/Marketing 0.25 0.45 0.25 0.05 0.00 20 Overall 0.29 0.41 0.20 0.08 0.02 86

15. How does weather impact the profitability of your organization?

None Little .:xJ1Tie ureatly Respondents

Crops 0.03 0.08 0.18 0.71 .38 Livestock 0.06 0.03 0.27 0.64 .3'3 Food Processing 0.20 0.20 0.20 0.40 20 Finance/Marketing 0.13 0.13 0.22 0.52 23

Overall 0.11 0.10 0.22 0.58 92


16. Is historical weather data (daily max.jmin. temperature and rainfall data) available for your local geographic area of interest?

Yes No Don't Respondents know

Crops 0.78 0.16 0,05 'S7 Livestock 0,73 0.17 0.10 30 Food Processing 0.65 0.15 0.20 2'.)


Overall 0.74 0.13 0.12 00

17. When do you generally sell, contract, or forward price your products? (average of % given)

After At Less than one l to 2 month 2 to 6 months 6 months or harvest/ harvest/ month prior to prior to prior to more prior to shipment shipment harvest/ship me harvest/ harvest/ harvest/

nt shipment shipment shipment Crops 27 30 8 2 17 12

Livestock 19 41 9 11 5 14

Food Processing 59 0 5 5 17 13

Finance/ Marketing 25 31 5 4 15 11

Overall 27 31 8 6 12 13

18. How important are different geographic regions of production for reducing risk to your organization when

a. the regions have the same harvest/shipping period?

Very Important No Opinion Not Respondents Important

Crops 0,45 0.15 0,24 0.00 0.15 33

Livestock 0.33 0.19 0.37 0.04 0.07 27

Food Processing 0.24 0.24 0.18 0,00 0.35 17 Finance /Marketing 0,76 0.12 0.12 0.00 0.00 17 Overall 0,38 0.18 0.28 O.Dl 0.15 74

b. the regions have a gi[[erent harvest/shipping period?


Crops 0.41 0.12 0.26 0.03 0.18 ;,q.

Livestock 0.23 0.23 0.42 0.00 0.12 26

Food Processing 0,33 0.17 0,22 0.00 0.28 18 Finance/Marketing 0.61 0.11 0.17 0.00 0.11 18 overall 0.33 0.17 0.32 0.01 0.17 76

•Arizo•·-na_-.so•n•o•ra_Agribusine_·_•·-s•s•S•tu•d•y•: -Qu-est-io•nruur-·•e•R•e•sults--------------••

c. a new region allows for the expansion of another product?


Crops 0.42 0.19 0.26 0.00 0.13 31 Livestock 0.08 0.19 0.54 0.04 0.15 26 Food Processing 0.19 0.19 0.31 0.00 0.31 16 Finance/Marketing 0.61 0.17 0.22 0.00 0.00 18 Overall 0.28 0.19 0.36 0.01 0.15 72

19. What are the .lli'..Q greatest risk factors or uncertainties that your organization faces?

Crops Livestock Food Processing Finance/ Overall Marketin!l

Frost 0.16 0 0.12 0.1 0.08

Drought/Heat Stress 0.13 0.31 0.15 0.02 0.18

Hail 0.03 0 0.06 0.02 0.03

Diseases 0.11 0.07 0.15 0.12 0.1

Insects 0.14 0.05 0.06 0.02 0.07

Payment Default 0.09 0.03 0.18 0.24 0.11

Regulations 0.11 0.23 0.09 0.24 0.18

Output Prices 0.11 0.18 0.12 0.12 0.13

Input Prices 0.04 0.05 0 0.02 0.04

Interest Rates 0.01 0.03 0 0.05 0.03

Exchange Rate 0.01 0.03 0.06 0 0.02

Other 0.04 0.02 0.03 0.05 0.04

Responses (I or 2 per 70 61 34 42 167 respondent)

20. Are you concerned about future devaluations of the peso for your business?

Yes No Respondents

Crops O.ol 0.49 'S1

Livestock 0.72 0.28 .32 Food Processing 0.57 0.43 21 Finance/Marketing 0.61 0.39 23 Overall 0.59 0.41 91

21 . Have you considered using the Mexican Peso Futures on the Chicago Mercantile Exchange as a way to manage exchange rate risk?

Yes No N.A. Respondents

Crops 0.05 0.65 0.30 'SI

Livestock 0.03 0.78 0.19 .32 Food Processing 0.10 0.67 0.24 21

Finance/Marketing 0.04 0.57 0.39 23 Overall 0.04 0.68 0.27 91

tit•i Arizona-Sonora Agribusiness Study: Questionnaire ResuJtg

22. Have you exported/imported any of your products directly or through a second handler (e.g. broker) to

::xmora Rest or Mexico uther Foreign Country

Yes No Respon- Yes No Respon- Yes No Respon-dents dents dents

Crops 0,50 0.50 32 0.5.3 0,47 32 0.75 0.25 32

Llvest?ck 0,72 0.28 29 0.50 0.50 30 0.24 0.76 29

Food Processing 0.37 0.63 19 0.44 0.56 18 0.85 0.15 ~

Finance/Marketing 0.64 0.36 14 0.65 0.35 17 0.65 0.35 17

Overall 0.55 0.45 76 0,49 0.51 77 0.5.3 0.47 78

23. Have you ever visited Sonora (Arizona)?

As a Tourist For Business

Yes No Respondents Yes No Respondents

Crops 0.78 0.22 32 0.65 0,35 .34

Livestock 0.83 0,17 29 0,73 0.27 .'.i3

Food Processing 0.85 0.15 ~ 0.65 0.35 ~

Food Processing Sonora 0.90 0.10 29 0.71 0.29 28

Finance/Market 0.91 0.09 23 0,81 0.19 21 Ing Overall 0.82 0.18 83 0.70 0,30 00

24. Did you visit a similar operation to yours?

Yes No Respondents

Crops 0.65 u.35 26

Livestock 0.78 0.22 27

Food Processing 0.47 0.53 17

Food Processing Sonora 0.29 0.71 21

Finance/Marketing 0.55 0.45 ~

Overall 0.59 0.41 73

25. Was the visit to consider/analyze the possibility of exporting or forming a joint venture in Sonora?

Yes No Respondents

Crops 0.62 0.38 26

Crop Sonora 0.43 0.57 28


Livestock Sonora 0.10 0.90 10

Food Processing 0.59 0,41 17

Food Processing Sonora 0.59 0.41 22

Finance/Marketing 0.55 0,45 ~

Overall 0,52 0.48 73

Arizona-Sonora Agribusiness Studg: Questionnaire Results

26. Has the lack of a PACA (Perishable Agricultural Commodities Act) or similar agreement for other products kept your level of trade with Mexico lower than it would otherwise be?

Yes No Oolnion

No Respondents

Crops 0.18 0.55 0.27 .33

Livestock 0.00 0.80 0.20 :50

Food· Processing 0.15 0.50 0 . .35 20

Finance/Marketing 0 . .3.3 0.52 0.14 21

Overall 0.12 0.65 0.2.3 84

27. Compared to today, how important do you expect trade will be to your business in 5 years?

Less same More Respondents

Crops 0.0.3 0.24 0.74 311-

Livestock 0.00 0.21 0.79 .33

Food Processing 0.00 0.29 0.71 21

Food Processing Sonora 0.04 0.25 0.71 2B

Finance/Marketing 0.04 0.17 0.78 2.3

Finance/Marketing Sonora 0.00 0.27 0.7.3 11


28. How has NAFTA affected your profits?

Negative No Impact Pos1t1ve Respondents Imoact Impact

Crops 0.12 0.12 0.68 0.00 0.09 34

Crops Sonora 0.46 0.00 0.54 1.3

Livestock 0.15 0.09 0.67 0.00 0.09 .33

Livestock Sonora 0.62 0.00 0 . .38 1.3

Food Processing 0.00 0.10 0.75 0.10 0.05 20

Food Processing Sonora 0.00 0.04 0 . .38 0.54 0.04 26

Finance/Marketing 0.1.3 0.04 0.57 0.1.3 0.1.3 2.3

Finance/Marketing Sonora 0,00 0 . .37 0.6.3 19

Arizona Overall 0.11 0.08 0.66 0.06 0.09 88

titi Arizona-Sonora Agribusiness Study: Questionnaire Results

29. What impact do you expect a more fully implemented NAFTA to have on your profits in 5 years?

Negative No Impact Positive Impact Respondents Impact

Crops 0.18 0.1~ 0.3.3 0.15 0.15 .33

Crops Sonora 0.25 0.25 0.50 16

Livestock 0.10 0.10 0.29 0.2.3 0.29 .31

Livestock Sonora 0 . .36 0.00 0.64 11

Food Processing 0.05 0.11 0.21 0.47 0.16 19

Food Processing Sonora 0.00 0.17 0,00 0.6.3 0.21 24

Finance/Marketing 0.14 0.00 0 . .32 0 . .32 0.2.3 22

Finance/Marketing Sonora 0.00 0 . .32 0.68 19

Arizona Overall 0.11 0.10 0 . .31 0.27 0.21 84

30. How has the 1994 devaluation of the peso affected your profits?

Negative No Impact Positive Respondents Impact Impact

Crops 0.22 0.1.3 0.6.3 0,0.3 o.w .32

Crops Sonora 0 . .39 0.0.3 0,58 .31

Livestock 0.45 0.19 0,2.3 0.00 0.1.3 .31

Livestock Sonora 0.57 0.00 0.4.3 14

Food Processing 0.1 I 0.05 0.79 0,05 0.00 19

Food Processing Sonora 0,28 0,20 0.12 0.24 0.16 25

Finance/Marketing 0.22 0.17 0.48 0,09 0,04 2.3

Finance/Marketing Sonora 0.42 0.5.3 0.05 19

Arizona Overall 0.27 0.14 0.50 0.02 0.06 84

31. In what way did NAFTA impact your business and what additional effects do you foresee for your business when NAFTA is fully implemented?

• More competition in citrus fruit. • Initial implementation of NAFTA stopped my goods to Mexico due partly to

lack of understanding of new rules by importers. Also shifted business to suppliers in other states.

• Greater partnership opportunities with Mexican agribusiness entities. • Very little effect at present because of peso devaluation but In future NAFTA

will increase competition with our domestic production. • As an equipment dealer some transactions and shipments to Mexico were

easier. The negative side is the effect that fruit and vegetable imports to the US are pushing local producer's incomes down. This is a major concern.

• Reduced or eliminated duty on imports, will ultimately increase the opportunity for exports to Mexico.

• More competing Mexican citrus. • Quality issues.

Arizona-Sonora Agribusiness Study: Questionnaire Results

• NAFTA has negatively affected our business because it has facilitated the movement of Mexican citrus in to the US and we have had to compete against cheaper prices.

• Lower prices on domestic sales. • Made it difficult to export seed into Mexico because of heavier quality

regulations

Live§tock

• Opened doors for more Arizona Competition in exports, created more paperwork.

• Increased movement of animals results in increased risk of disease introduction.

• When NAFTA is fully implemented US vehicles and equipment will be easier and cheaper to supply our Mexican corp. We will not have to duplicate vehicles, and equipment in US and Mexico.

• Less paper work, if we could only reduce the fees. • Livestock can cross border from both directions without tariffs. • Less tariffs to our company. • Export fees increased. • Sonora invoked their certified meat grading system to impose a non-tariff trade

barrier. • I think NAFTA has taken a bad rap, having been confused with fallout from the

peso devaluation. • NAFTA will continue to benefit the ag exports. • Because we are a small operation and are some distance from the border, I don't

foresee much of an impact, either positive or negative. • Sales of fresh milk and product (cheese) will increase. • Need more milk products to be moved out of the US. • If we see more cattle, especially breeding cattle, cross in to Mexico without

the high import cost as it is today we will have increased competition. • Used to sell breeding stock annually to Mexico but have not sold anything

since NAFTA passed. • NAFTA has not had a significant impact on our business nor do we expect it to

in the future. • Ag commodities have decreased in value as a result of NAFTA. • Mexico ignored NAFTA with regards to cattle shipments.

f'ood Processing

• I give certification classes for process supervisors of chemically processed foods. We have had a increase of participants since NAFTA.

• Phytosanitary and sanitary problems emerged as tariff barriers declined. Demand for more unified phytosanitary regulations to promote freer trade. Department becoming more involved in international trade issues to promote AZ exports.

• Lowering of duties. • Might increase potential markets.

''''

,,,, Arizona-Sonora Agribusiness Stud~: Questionnaire Results

Finance/Marketing

• 25 mile free zone, access to diminishing tariff on fresh vegetable to be processed.

• It should be good for the state government in both states. • Has helped expedite crossings but even this has slowed in 96-97 season due to

volume and poor system in place in Mexico. Also lack enough inspectors .,usDA, FDA) at border.

• Other than for cantaloupes, no tariff rate impact. Biggest Impact is on ease of exporting US Inputs and services to Mexican growers.

• Live cattle dumped on US caused all kinds of negative discussions. Tomatoes also dumped in US.

• Mexico has not implemented NAFTA, our Import costs are still 50% to Respondents. Mexico will not change unless we get a better form of trade. Their economy Is bankrupt.

• Easier and more freight internationally. • We will be asked to finance companies with production/sales in Mexico. • Provides more opportunities for business development, more opportunities to

make direct and guaranteed loans. • Increased costs of operations -Increased Interest of non-professional amateurs,

thereby decreasing system efficiency. • Lessened duty costs. • Less import duties owed to US customs. • Paper flow and crossings have improved but have seen and do not see any

other improvements.

32. In what ways did the 1994 devaluation of the peso affect your operation or business?

• No significant Impact. • Created financial instability. • Slowed export to Mexico. • Helped our labor force. • Far less equipment sales. • Monetary Loss of Funds in Mexico.

Livestock

• Export companies left the Mexican market. • No affect, except for Increasing movement of cattle Northward (other factors

were involved, 1.25M in 94, 1.6M in 95). • Caused increased cattle exports from Mexico and more demand for our services

preparing the cattle to meet USDA import requirements. • Less packaged milk sold in Mexico from US. • Made the money worth more and labor cheaper by comparison. • Reduced customers' ability to purchase. • Less sales. • Caused us to cease sales of live cattle to Mexico and extend long-term credits

to customers with accounts receivables prior to devaluation.

Arizona-Sonora Agribusiness Stud1J: Questionnaire Results

• It substantially limited the purchasing power of the Mexican people, as it is stabilized and confidence is restored, I see Mexico as a major player for US and AZ products.

• Mexican ranchers have less money to buy herd bulls. • We didn't feel a direct impact in our business, however, I think the

devaluation had a significant negative affect for Mexico as a whole and for AZ businesses of overall types.

• Sales of fresh milk stopped. • Less product purchased. • Less interest from Mexico buyers. • Exports of lactose decreased. Also reduced the amount of non-fat dry milk

exported under DEIP. • Customers could not purchase service. • Less purchasing power of the peso means we have to decrease cattle prices to

sell into Mexico. • Mexican ranchers have less buying power and consequently purchase fewer

breeding animal from me. • Mexican cattlemen had less dollars to spend on breeding cattle from Arizona. • Business stopped - they did not pay for cattle. • Hurt their economy and reduced the sale of meat. • We sell slaughter cattle to Sonora meat packers, devaluation stopped most of

their purchasing power.

Food Processing

• Students from Mexican-owned companies dropped to zero. • Some companies quit exporting and demanded fewer department service.

Other companies wanted more help to cope with the devaluation. • Big effect. Lost 30% of our business. • Lost customers. • Made purchases more efficient. Made Mexican suppliers now want to be in

us. • None, made adjustments with growers.

Finance/Marketing

• Caused growers to try to export work to US, result was lower markets offset by more volume.

• Reduction in overall demand growth for higher priced produce in Mexican national market. Otherwise no effect. Most inputs are priced in dollars and peso items of interest rate rise offset temporary decline of labor costs.

• Interest rates skyrocketed as local banks wrote off Mexican notes. • We had to close our office in Nogales, AZ. • Little effect, most freight paid in dollars by US companies. • Our customers who have peso exposure were weakened. • Reduced the ability of some borrowers to repay loans. • Little effect- risk managed around. • We pay expenses in pesos and sell in dollars, principally. Cannot sell into

Mexico, currently only importing. • Very little. Increased Mexicans' desire to export. • Curtailed exporting to Mexico.

•i~i


.3.3. Have you purchased any production inputs (e.g., seeds, breeding livestock, etc.) or received technical assistance from Mexico in the last. ..

Sonora Rest of Mexico .3 Yrs. 4 to 10 Yrs. .3 Yrs. 4 to 10 Yrs .

Yes No Respon- Yes No Respon- Yes No Respon- Yes No dents dents dents

CroP!>. 0.21 0.79 34 0.15 0.85 .33 0.09 0.91 .33 0.09 0.9 1

Livestock 0.27 0.7.3 .33 0.17 0.8.3 .30 0.1.3 0.87 .31 0.14 0.86

Food Processing 0.16 0.84 19 0.16 0,84 19 0.16 0.84 19 0.21 0.79

Finance/ Marketing 0.24 0.76 21 0.24 0.76 21 0.10 0.90 2J 0.20 0.80

Overall 0.20 0.80 00 0.14 0.86 8'3 0.09 0.91 81 0.11 0.89

.34. If you have ever traded or done business in any foreign country (including Mexico), how have these activities changed from five years ago to the present time?

Selling in the export market?

Increase Decrease No Change Responses

Crops 0.60 0.24 0.16

Livestock 0.45 0.40 0.15

Food Processing 0.9.3 0.07 0.00

Finance/ Marketing 0,.30 0.60 0.10

Overall 0.57 0,.30 0.1.3

Buying inputs from a foreign country?

Increase Decrease No Change

Crops 0.50 0.29 0.21

Livestock 0.75 0.00 0.25

Food Processing 0.82 0.00 0.18

Finance/ Marketing 0.44 0 . .3.3 0.22

Overall 0.60 0.17 0.2.3

Producing goods in a foreign country?

Increase Decrease No ChanAe

Crops 0.6.3 0.25 0.1.3

Livestock 0.00 0.00 1.00

Food Processing 1.00 0.00 0.00

Finance/ Marketing 0.80 0,20 0.00

Overall 0,7.3 0.18 0.09

Responses

14

8

11

9

.30

Responses

8

1

4

5

11

25

2J

14

IO

54

Respon-dents

.32

29

19

2J

79

Arizona-Sonora Agribusiness Stud-y: Questionnaire Results Nt• 35. Are production practices different in Mexico compared to the US regarding the

quantities used of the following inputs?

Pesticides

Mexico Same Mexico No Opinion Respondents Less More

Crops 0.oo 0.17 0.31 0.46 55

Crops· Sonora 0.29 0.42 0.26 0.03 31

Livestock 0.00 0.00 0.26 0.74 27

Food Processing 0.13 0.13 0.19 0.56 16

Finance/ Marketing 0.11 0.16 0.42 0.32 19

Overall 0.08 0.08 0.25 0.60 77

Herbicides

Mexico "8ll1e Mexico No Opinion Respondents Less More

Crops 0.11 0.23 0.20 0.46 55

Crops Sonora 0.31 0.34 0.34 0.00 .32

Livestock 0.04 0.04 0.15 0.78 27

Food Processing 0.19 0.06 0.19 0.56 16


Overall 0.10 0.10 0.18 0.61 77

Fungicides


Crops 0.06 0.29 0.15 0.50 ;j4.

Crops Sonora 0.34 0.44 0.22 0.00 .32

Livestock 0.04 0.04 0.11 0.81 27

Food Processing 0.06 0.19 0.13 0.63 16

Finance/ Marketing 0.ll 0.21 0.37 0.32 19

Overall 0.07 0.13 0.16 0.64 76

Growth regulators/Hormones


Crops 0.09 0.12 0.09 0.71 ;j4.

Crops Sonora 0.42 0.26 0.29 0.03 31

Livestock 0.10 0.14 0.14 0.62 29

Livestock Sonora 0.21 0.57 0.21 0.00 14

Food Processing 0.13 0.06 0.06 0.75 16


Overall 0.09 0.10 0.12 0.69 78


Vaccinations


Crops 0.15 o.w 0.03 0.82 33

Crops Sonora 0.33 0.26 0,30 0.11 Z7

Livestock 0.30 0,10 0.10 0.50 ~

Livestock Sonora 0.29 0.4-3 0.29 0.00 14

Food Processing 0.06 0.00 0.06 0.88 16


Overall 0.21 0.04 0.06 0,69 77

.36. Please indicate the importance of the following areas you think should be considered to enhance Arizona and Sonora's potential as an agribusiness Industry.

a. Better development of infrastructure to port of Guaymas.

Very Important No UptnlOn Not Important Respondents

Crops 0,22 0.25 0.39 0.06 0.08 36

Livestock 0.09 0.38 0.50 0.00 0.03 32

Food Processing 0.05 0.25 0.50 0.00 0.20 20

Food Processing Sonora 0.58 0.19 0.12 0,12 0.00 26

Finance/ Marketing 0.35 0.22 0.26 0.13 0,04 23

Finance/Marketing Sonora 0.25 0.25 0.50 20

Arizona Overall 0.19 0.26 0.44 0.03 0.08 00

b. Development of a regional International airport at Yuma to facilitate transportation of perishable products.

Very Important No Opinion Not Important Respondents

Crops 0.11 0.17 0.47 0.08 0.17 36

Livestock 0.10 0.23 0.48 0.10 0.10 31

Food Processing 0,05 0.20 0.55 0.05 0.15 20

Food Processing Sonora 0.17 0.33 0.21 0.21 0.08 24

Finance/ Marketing 0.22 0.17 0.30 0.22 0.09 23


Arizona Overall 0,13 0.18 0.49 0.10 0.10 88

Arizona-Sonora Agribusiness Stud9: Questionnaire Results ii@ c. Legal agreements that offer enforcement of contracts between Arizona and

Sonora individuals.

Very Important No Opinion Not important Respondents

Crops 0.66 o.~ U,14 U.1.N 0.1.N 35

Livestock 0.53 0.31 0.13 0.00 0.03 32

Food Processing 0.65 0.20 0.10 0.00 0.05 20

Food· l'rocessing Sonora 0.46 0.27 0.15 0.12 0.00 26



Arizona Overall 0.58 0.27 0.13 0.00 0.02 138

d. Property right / foreign land ownership issues in Sonora.


Crops 0.46 0.29 0.23 0.00 0.0.3 35

Livestock 0.44 0.34 0.19 0.00 0.0.3 32

Food Processing 0.40 0.15 0.40 0.00 0.05 20


Finance/ Marketing 0.57 0 . .35 0.04 0.04 0.00 23

Finance/Marketing Sonora 0.25 0.40 0 . .35 20

Arizona Overall 0.4.3 0.30 0.23 O.Ql 0.03 138

e. Improvements in transportation and communication infrastructure in Sonora.

Very Important No Oplnton Not important Respondents

Crops 0.51 0.23 0.23 0.00 0.0.3 35

Livestock 0.63 0.34 0.03 0.00 0.00 32

Food Processing 0.45 0.25 0.20 0.00 0.10 20



Arizona Overall 0.53 0.28 0.16 0.00 0.02 138

f. Unified standards and grading.


Crops 0.63 0.29 0.06 0.03 0.00 35

Livestock 0.59 0.28 0.13 0.00 0.00 32

Food Processing 0.55 0.10 0.20 0.10 0.05 20


Finance/ Marketing 0.57 0.26 0.1.3 0.04 0.00 23


Arizona Overall 0.57 0.26 0.14 0.02 O.oI 138

ti4·1 Arizona-Sonora Agribusiness Stud1:3: Questionnaire Results

g. Working together to impact federal legislation in Washington D.C. and Mexico City.


Crops 0.42 0,24 0.27 o.w 0.06 33

Livestock 0.48 0.29 0.23 0.00 0.00 31

Food Processing 0.45 0.30 0.20 0.00 0.05 20

Food ·Processing Sonora 0.42 0,54 0.00 0.04 0.00 26

Finance/ Marketing 0.50 0.27 0.14 0.00 0.09 2'2

Arizona Overall 0.45 0.27 0.24 0.00 0.05 85

h. Developing and producing more value-added products.


Crops 0.29 0.26 0.43 0.03 0.00 35

Livestock 0 . .38 0,31 0.28 0.03 0.00 32

Food Processing 0.25 0.30 0.40 0.00 0,05 20

Food Processing Sonora 0,60 0.36 0.04 0,00 0.00 25


Arizona Overall 0.34 0.30 0.34 O.oI O.oI ffi

I. Annual trade show focused toward Arizona and Sonora Agribusiness.

Very lmponant No Optmon Not Important Respondents

Crops 0.20 0.14 0.43 0.11 0.11 35

Livestock 0.34 0 . .38 0.25 0.03 0.00 32

Food Processing 0,05 0.40 0.20 0.10 0,25 20



Finance/Marketing Sonora 0.95 0,05 0.00 20

Arizona Overall 0.23 0.30 0.32 0.08 0.08 ffi

j. Streamlining border crossing formalities for products.


Crops 0.54 0.26 0.20 0.00 0.00 35

Livestock 0,69 0.19 0,09 0.03 0.00 32

Food Processing 0.80 0,10 0.05 0,00 0.05 20



Arizona Overall 0.66 0.22 0.10 0,01 0,01 ffi

. Arizona-Sonora Agribusiness Study: Questionnaire Results 1111 k. Streamlining border crossing formalities for individuals.


Crops 0.32 0.26 0.32 0.Vl:I 0.00 ;,q.

Livestock 0.42 0.23 0.23 0.06 0.06 31

Food Processing 0.55 0.20 0.15 0.05 0.05 20

Food J~rocessing Sonora 0.35 0.50 0.08 0.04 0.04 '.b:5


Arizona Overall 0.41 0.24 0.23 0,07 0.05 00

Bilingual regional agency as a place to go for

I. dispute resolution.

Very Important No Opinion Not Respondents important

Crops 0.39 0.30 0.24 O.w 0.06 .33

Livestock 0 . .34 0.28 0.38 0.00 0.00 32

Food Processing 0.39 0.22 0.28 0.00 0.11 18

Food Processing Sonora 0.27 0.50 0.15 0.08 0.00 '.b:5



Arizona Overall 0 . .34 0.31 0.29 0.00 0.06 00

m. facilitator/clearinghouse to establish trade lead contacts.


Crops 0.31 0.50 0.16 0.03 0.00 32

Livestock 0.38 0.28 0.31 0.03 0.00 32

Food Processing 0 . .33 0.39 0.17 0.06 0.06 18




Arizona Overall 0.33 0.38 0.21 0.04 0.05 85

n. listing source for translation providers and services.


Crops 0.25 0.41 0.31 O.w 0.03 32

Livestock 0.41 0.31 0.25 0.00 0.03 32

Food Processing 0.33 0.33 0.22 0.00 0.11 18




Arizona Overall 0.29 0.36 0.28 0.00 0.06 85

ti¾J Arizona-Sonora Agribusiness Study: Questionnaire Results

o. current regulations specific to agriculture.

Very No Opinion Not Important Respondents lmPOrtant

Crops 0.45 0.45 0.10 0.00 0.00 31

Livestock 0.55 0.26 0.19 0.00 0.00 31

Food Processing 0.28 0 . .39 0.28 0.00 0.06 18

Food _l,'rocesslng Sonora 0 . .33 0.46 0.08 0.08 0.04 211-


Finance/Marketing Sonora 1.00 0.00 0.00 ~

Arizona Overall 0 . .39 0 . .39 0.20 0.00 0.02 83

Question 36 res12ons~s rank~d b~ Arizona Qrder Qf im12ort§!n~e. Please indicate the importance of the following areas you think should be considered to enhance Arizona and Sonora's potential as an agribusiness industry? (see appendix A for exact question wording)

Crops Livestock Food Finance/ Arizona Processlnu Marketlnu Overall

a. Infrastructure to Guaymas port. 13 14 15 11 14

b. Development of Yuma airport. 15 15 14 15 15

c. Enforceable contracts between AZ l 5-6 2-3-4 2 2 +Sonora

d. Property right/land ownership In 6-7 7 12 4-5 7 Sonora.

e. Sonoran Infrastructure Improvements. 8-9 8-9-10 3 4

f. Unified standards and grading. 2 3 8-9-10 4-5 3

g. Work together to Impact federal 8-9 5-6 6-7 7 6 legislation.

h. Value-added products. 12 9-10 11 6 9-10

I. Annual trade show. 14 9-10 13 14 13

U, Streamlining border crossing - 3 2 l products.

k. Streamlining border crossing - 11 13 2-3-4 9 9-10 Individuals.

I. Bilingual Regional Agency - dispute resolution

6-7 12 6-7 10 lI

m BRA - facilitator/clearinghouse. 4-5 11 2-3-4 13 8

n BRA - translation list. 10 8 5 12 12

o. BRA - Current regulations 4-5 4 8-9-10 8 5


37. Do you think that Arizona and Sonora can better develop markets outside the region for products grown or processed by

a. developing a better year round supply of perishable products.

Yes Uncertain No Respondents

Crops 0.47 0.50 U.U3 ;)II,

Livestock 0.37 0.57 0,07 :so Food Processing 0.58 0.37 0.05 19

Food Processing Sonora 0.67 0.08 0.25 24

Finance/ Marketing 0.65 0.30 0.04 23

Customs Sonora 0.42 0.47 0.11 19

Arizona Overall 0.49 0.47 0.04 8.5

b. pursuing joint production / marketing ventures.


Crops 0.53 0.44 0.03 ;)II,

Livestock 0.71 0.23 0.06 31





Arizona Overall 0.64 0.33 0.04 8.5

c. taking advantage of economies of size opportunities.

Yes uncertain no Respondents

Crops 0.61 0.39 0.00 .3.3

Livestock 0.74 0.19 0.06 31






d. developing better financing strategies/legal agreements.


Crops 0.79 0.~l u.oo ;)II,

Livestock 0.87 0.10 0.03 31





Arizona Overall 0.82 0.16 O.oI ffi

ltti

ti41 Arizona-Sonora Agribusiness Stud9: Questionnaire Results

e. developing a common brand label for the region.


Crops 0.15 0.5.3 u.32 :,,ri.

Livestock 0 . .39 0.52 0.10 31

Food Processing 0.17 0.50 0 . .3.3 18


Finance/ Marketing 0.22 0.52 0.26 2.3

Finance/Marketing Sonora 0.89 O.ll 0.00 19

Arizona Overall 0.26 0.5.3 0.21 ffi

38. Which of the following reflects your views of Sonora (Arizona) and the rest of Mexico (USA) for your business.

a. Sonora (Arizona) is a potential or expanding market.

Strongly Agree No Opinion ::strongly Disagree Respondents

Crops 0.37 0.57 0,UI:) o.uu 0.00 55

Crops Sonora 0.46 0.21 0.13 0.04 0.17 24

Livestock 0.55 0.42 0.03 0.00 0.00 33

Livestock Sonora 0.40 0.10 0.10 0.00 0.40 IO

Food Processing 0.32 0.6.3 0.05 0.00 0.00 19


Finance/ Marketing 0.43 0.57 0.00 0.00 0.00 2.3

Arizona Overall 0.43 0.52 0.05 0.00 0.00 00

b. The rest of Mexico (USA) is a potential or expanding market.

Strongly Agree No Opinion Strongly Disagree Respondents

Crops 0.49 0.46 0.00 0.00 0.00 55

Crops Sonora 0.64 0.18 0.14 0.05 0.00 22

Livestock 0.50 0.47 0,03 0.00 0.00 32

Livestock Sonora 0.60 .oIO 0.10 0.10 0.10 10

Food Processing 0.42 0.56 0.00 0.00 0.00 19


Finance/ Marketing 0.57 0.43 0.00 0.00 0.00 2.3

Arizona Overall 0.45 0.52 0.03 0.00 0.00 87

Arizona-Sonora Agribusiness Study: Questionnaire Results ilfi c. Sonora (Arizona) is a competitor for my business.

Strongly Agree No Opinion Strongly Respondents DlsaAree

Crops 0 . .32 0.15 0.26 0.15 0.12 .34

Crops Sonora 0.20 0.12 0.16 0.04 0.48 25

Livestock 0.06 0.19 0 . .31 0.25 0.19 .32

Livestock Sonora 0.10 0.10 0 . .30 0.00 0.50 10

Food Processing 0.16 0.21 0.21 0.26 0.16 19

Food Processing Sonora 0.1.3 0.08 0.21 0.46 0.1.3 24

Finance/ Marketing 0.26 0.00 0.17 0.22 0 . .35 2.3

Arizona Overall 0.15 0.14 0.28 0.2.3 0.20 00

d. The rest of Mexico (USA) is a competitor for my business.

Strongly Agree No Opinion Strongly Respondents DisaAree

Crops 0.24 0.15 0 . .30 0.24 0.06 33

Crops Sonora 0 . .39 0.09 0 . .35 0.00 0.17 2.3

Livestock 0.06 0.09 0 . .38 0.28 0.19 .32

Livestock Sonora 0.10 0.10 0.40 0.10 0 . .30 10

Food Processing 0.16 0.11 0.16 0.47 0.11 19


Finance/ Marketing 0.1.3 0.04 0.17 0 . .30 0,.35 2.3

Arizona Overall 0.12 0.09 0 . .31 0 . .31 0.18 85

e. Agribusiness opportunities are better in Sonora (Arizona) than the rest of Mexico (USA)

Strongly Agree No Optnton Strongly Disagree Respondents

Crops 0.06 0.21 0.5.3 O.uo 0.15 34

Crops Sonora 0.08 0.17 0.25 0.00 0.50 12

Livestock 0.22 0 . .38 0 . .38 0.0.3 0.00 .32

Livestock Sonora 0.1.3 0.00 0,.38 0.1.3 0 . .38 8

Food Processing 0.16 0.16 0.5.3 0.00 0.16 19


Finance/ Marketing 0.09 0.17 0 . .39 0.1.3 0.22 2.3

Arizona Overall 0.14 0.24 0.49 0.06 0.07 00

rl?I Arizona-Sonora Agribusiness Study: Questionnaire Results

39. Do you think it is possible for Arizona and Sonora to increase the economic viability of the region's Agribusiness Industry by working together?

40.

Yes .::,orne No Respondents Sectors

Crops 0.64 0.33 0.03 53

Crops Sonora 0.90 0.00 0.10 29

Livestock 0.77 0.23 0.00 31 ·•

Livestock Sonora 1.00 0.00 0.00 14




Arizona Overall 0.72 0.27 0,01 ffi

Food Products processed in Mexico

a. utilize the same processing technology as in the US.


Crops 0.18 0.03 0.47 0.24 0.09 34

Livestock 0.16 0.16 0.19 0.41 0.09 32

Food Processing 0.15 0.20 0.25 0.25 0.15 20


Finance/Marketing 0.18 0.14 0.36 0.18 0.14 22

Arizona Overall 0.16 0.13 0.33 0.29 0.09 fJ1

b. undergo the same food safety precautions as in the US?

Strongly No Opinion Strongly Disagree Respondents Agree

Crops 0.18 0.06 0.27 0.24 0.24 53

Livestock 0.19 0.16 0.09 0.22 0.34 32

Food Processing 0.15 0.05 0.25 0.30 0.25 20

Food Processing Sonora 0.08 0,36 0.20 0.36 0.00 25


Arizona Overall 0.17 0.09 0.24 0.24 0.24 ffi

c. need FDA or USDA certification to be accepted by US consumers, even if the processing technology and safety precautions are the same as those used in the US?


Crops 0,44 o.~ 0,24 0.03 0.03 34

Livestock 0.50 0.25 0.13 0.06 0.06 32

Food Processing 0.35 0,30 0.15 0.15 0.05 20


Finance/Marketing 0.45 0.27 0.18 0.09 0,00 22

Arizona Overall 0.44 0.25 0.21 0.06 0.05 fJ1

Arizona-Sonora Agribusiness Stud'3: Questionnaire Results

41. Phytosanitary requirements at the border are more political than scientifically based.

Strongly No Opinion Strongly Disagree Respondents A!lree

Crops 0 . .39 0.18 0.33 0.0.3 0.06

Livestock 0.29 0.19 0 . .32 0.1.3 0.06

Food_ yrocesslng 0.15 0.25 0.50 0.05 0.05

Food Processing Sonora 0 . .3.3 0.33 0.17 0.17 0.00

Finance/Marketing 0.48 0.17 0.26 0.04 0.04

Arizona Overall 0 . .31 0.20 0 . .37 0.06 0.06

Financing

42. Have you ever made any direct loans or invested in any Mexican business activities?

I Sonora Rest of Mexico


Crops 0.67 0 . .3.3 12 0.4.3 0.57 7

Livestock 0.71 0.29 7 0.50 0.50 4

Food Processing 0.60 0.40 5 0.50 0.50 4

Finance/Marketing 0.67 0 . .3.3 12 0.56 0.44 9

Overall 0.65 0 . .35 26 0.47 0.5.3 17

42a. Having made direct loans or invested in Mexican business activities, what are your basic requirements for Mexican loans?

• Non-revocable letter of credit. • Contract to purchase and a check from the entity as security. • Contract on production allowing for deduction of loan upon delivery and

settlement of crop.

Livestock

• Character of the borrower is weighted equal to collateral. • Money safe with people I know. • Trust.

Food Processing

• Heavy selling, good contracts.

Finance/Marketing

• Contract and collateral if available. • Any business built on trust, consideration and cooperation.

.33

.31

~

24

23

00

• Secured in US assets or guaranteed by major Mexican financial institution.

ii¼•

Arizona-Sonora Agribusiness Stud'3: Questionnaire Results

• • •

Reputation . Contract registered in Mexico, collateral if available . We no longer invest in Mexico .

42b. If you have not made an direct loans or invested in any Mexican business activities, why not?

• Do not trust the Mexican Government. • Risk/cost factor.

Food Processing

• Very risky.

Finance/Marketing

• Issues regarding securing assets. • Work through American growers.

Livestock (26 AZ and 14 Sonoran livestock respondents)

43. What are your primary concerns in leasing pasture to Sonorans (Arizonans) or sending live cattle to Sonora (Arizona) for grazing? Indicate the importance of each concern.

Very Important No Opinion Not Important

Brand registration concerns Arizona 0.40 0.40 0.08 0.04 0.08 Sonora 0.66 0.17 0.17

Re-entry risk/concerns (e.g. Arizona 0.7.3 0.27 0.00 0.00 0.00 quarantine, legalities Sonora 0.77 0.08 0.15 of ownership)

Grazing contract concerns (e.g. Arizona 0.58 0 . .31 0.08 0.00 0.04 adequate water, grass, Sonora 0.50 0.08 0.15 health care)

Method of payment / fraud Arizona 0.65 0.27 0.04 0.00 0.04 Sonora 1.00 0.00 0.00

Animal health risk in Sonora Arizona 0.58 0 . .31 0.00 0.00 0.12 (Arizona) or herd health Sonora 0 . .3.3 0.17 0.50 risk in Arizona (Sonora)

44. Have you ever sold live cattle to Mexico?

Sonora Rest of Both None Respondents Mexico

Livestock 0 . .38 O.U4 0 . .35 0.2.3 26

Arizona-Sonora Agribusiness Stud~: Questionnaire Results

45. Have you ever shipped live cattle for grazing to Sonora (Arizona) (i.e., retained ownership) with the intent to return them to Arizona (Sonora)?

1 out of 26 Arizonans. 1 out of 14 Sonorans.

46. If you are a feedlot operator, about what percentage of your feeder cattle originate from Sonora?

.. Respondent 5 years ago last 2 years

#1 0 30

#2 5 6

#3 00 65

#4 IO 15

#5 15 25

#6 30 2

4 7. How do Sonoran raised calves perform relative to Arizona raised calves in Arizona feedlots

Arizona

Sonora

Better About the same

0.05 0.36

0.08 0.64

Worse No opinion

0.23 0.36

0.14 0.14

Respondents

24

14

For Firms Doing Business With Mexico

48. What are the primary products your business has exported to Mexico in the last 3 years and about what percentage do these exports make of your total business sales?

cotton pickers (mostly Sonora, 2%), combines (1 %), tractors (2%), parts (3%), rentals, (Monterrey, 2%). asparagus seed (caborca, Baja CA), Alfalfa seed (caborca, Baja CA). bunching onion seed (Sonora,2%), radish seed (Sonora, 1 % ), other vegetable seeds (various, 1 %). fresh citrus (Nogales, Mexicali, <l %). alfalfa, sudan, vegetable, oats, barley. bermudagrass seed (Sonora, 5%), safflower (1 %). transplants (Sonora, 5%). pecan meats (Mexico City, 1 %). pecans (Chihuahua, < 1 %) barley & Wheat Seed (Sonora & Baja CA, 3.5% Pre-NAFTA). melons (Nogales, 1 %).

Iii

tit•i Livestock cattle (Sonora).


livestock services (Sonora, Chihuahua, Baja, Coahuila, Durango, 85%), Horses (5%), bulls and heifers (10%). live ostriches (Sonora, 20%), raw hides (Sonora, 90%). cattle (Sonora, 5%). ostrich hides (Chihuahua, Leon). breeding stock bulls'(Nogales, 10%). live cattle (Hermosillo, Sonora, 1 %), Breeding Cattle (Hermosillo, Sonora, 1 %). herd bulls. bulls (Sonora, >10%), bull semen (all of Mexico, >10%). lactose (all of Mexico, 5%). breeding bulls ( Sonora, 20%). breeding cattle. live cattle (Sonora, Mexicali, > 10%). fat cattle (Sonora, Baja, 5%). Food Processing

beverages (Sonora, Chihuahua, Sinaloa, Baja,40%), milk (Sonora, 20%), soups (Sonora, 20%). cheesecake (Mexico, 5%). Finance/Marketing

financial services (1 %). processing equipment (Eastern Mexico, 10%), post harvest equipment (Eastern Mexico, 10%), grains (Central Mexico, 70%), fruit.

49. What are the main products or inputs your business has imported from Mexico in the last 3 years and about what percentage have these products made of your total products purchased or grown (include products grown in Mexico)?

~ bermudagrass (5%) in-shell pecans (Sonora, Chihuahua, Torreon, Durango, 10-20%) Pecans/Inshell (Sonora, Chihuahua, 4%). Tomatoes (Sinaloa, Baja CA, 20%), grapes (Sonora, 10%), mango (Jalisco, 10%}, Cucumbers (Sinaloa, 10%), Squash (Sonora, Sinaloa, 10%), peppers (Sinaloa, Sonora,

8%). dry onions (E. Mexico,7%), Melon (E. Mexico, 7%), peppers (E. Mexico, 7%), chili

(E. Mexico, 7%), mango (S. Mexico, 7%).

Livestock stocker cattle (Sonora, 10%), horses (Sonora, Durange, 90%). cattle (Sonora). cattle (Sonora, 5%). live cattle (Sonora, 75%, rest of Mexico, 5%). Feeder Cattle (Nogales, San Luis, 15%). Feeder cattle (25-30%). feeder cattle (Sonora, 4%, rest of Mexico, 1 %).

Arizona-Sonora Agribusiness Stud9: Questionnaire Results

Food Processing green chili (Nueva Leon, Casa Grande), jalapeno (Palomas), tomatillo (Culiacan),

Bell Pepper (Culiacan), artichokes (Caborca). olives (Sonora, Baja, 60%), artichokes (Sonora, 100%).

Finance/Marketing vegetables (Sinaloa, Chihuahua, Sonora, 100%) squa;s,hes (Sinaloa, 18%); peppers (Sinaloa, 5%)

50. About how many truckloads of your product cross the border every year?

52. What is the average time it takes for a load of your product to cross the border?

~ # of shipments: 1-1000 Crossing time range: 2 hrs. -1 day Weighted average: 5.9 hours Note: does not include largest ( 1000) shipper because no crossing time given .

Livestock # of shipments: 1-1000 Crossing time range: 30 min. to 14 days Weighted average: 2.5 days Note: does not include 2 largest delays because no shipments# given, 78% one shipper at 3 days.

Food Processing # of shipments: 1-600 Crossing time range: 1 hour to 1 day Weighted average: 21.3 hours Note: 87% of crossings represent one shipper at one day.

Finance/Marketing # of shipments: 500-8000 Crossing time range: 3 hrs. to one day Weighted average: 1 1. 1 hours

51. Which port of entry/exit do you generally utilize?

Overall Crops Livestock Food Processing

Nogales AZ 26 8 10 6

Yuma AZ 7 5 2 0

Mexicali CA 5 4 0

El Paso TX 4 2 2 2

Douglas AZ 4 0 3

Presidio TX 2 1 1

Columbus NM 2 0 1 1

Other 3 0 4

Respondents 'SI 14 15 7

Other ports include: Naco, Laredo, Del Rio

Finance/Marketing

8

0

0

0

0

0

9

iii•


5.3. How often do you experience problems in moving your products across the border?

Always Frequently Occasionally Never N.A. Respondents

Crops 0,lN o.14 0.79 0.00 0.07 14

Livestock 0.07 0.07 0.5.3 0.20 0.13 15

Food Processing 0.13 0.25 0.50 0.00 0.13 8

Finance/Marketing 0.ll 0.ll 0.56 0.00 0.22 9

Overall 0.08 0.14 0.57 0.08 0.14 S7

54. What agencies have been most difficult to clear in moving your products across the border? (e.g., Customs, FDA, APHIS, etc.)

~ 5 out of 26 • customs • Overall • APHIS • customs • customs

Food Processing .3 out of 15 • customs • customs

• customs/FDA

Livestock 6 out .3.3 • SACRE/ APHIS • customs and vet • State vet, Lab • APHIS

• customs • customs

Finance/Marketing 6 out of 18 • Customs ( Mexican and American) • customs, Mexican brokers,

propinos • customs, APHIS • FDA, DEA • customs • customs, Mexican and American


55. What is the longest delay you have ever had in crossing the border with your products? What was the explanation/cause for the delay? What was the cost of the delay to you? When did the delay occur?

crops··

vestock

Foo

Processing

nance/

Marketing

Longest dela

6 weeks

1 day

1 day

3 days

day

4days

3days

1 day

Exp anat on

mproper label ng

paperwork, phytosanltary clearance, test Information, then order was canceled change of phytosanltary regulations

could not find vet

Political, Mexico City

ear ticks

transfer load

volume

Mexican customs, brokers

pest. res.

red tape

st Dae $

00 Nov-91

30000 spring, 1996

Ju - 2

3000 1997

winter,95

2000 Jul-92

500 Jun-92

1000 spring, 96

Jan-93

100% of load every crossing had problems

8000+ Oct-92

Jan-93

56. Do you have an employee that is primarily devoted to taking care of border crossings?

57.

Yes No Respondents

Crops 0.54 0.40 13



Finance/Marketing 0.67 0.33 9

Overall 0.40 0.60 35

Do you use a broker for your exports or imports?

Yes No Respondents

Crops 0.64 0.36 14



Finance/Marketing 0.75 0.25 8

Overall 0.66 0.34 35

If above is yes, what city and State is your primary broker located in?

22 responses - Nogales (14), Douglas (3), Laredo, El Paso, Presidio, San Luis, Mexicali, unspecified.

1111

till Arizona-Sonora Agribusiness Study: Questionnaire Results

58. Do you have any production, joint venture agreements or similar activities in Mexico? If yes, about what percent of the financing has been provided by ... ?

1 in Sonora - 50/50 joint venture with foreign partner

Livestock

3 in Sonora - Respondents' own financing. 1 in Sonora and rest of Mexico - Respondent's own financing

Food processing

1 in Sonora - 5% own organization financing, 95% foreign partner joint venture 1 in both: 1 in Sonora - 5% own financing, 70% bank financing, 25% joint venture

with national partner 1 in rest of Mexico - 1 % own financing, 99% joint venture with national partner

59. How many 'owners' generally handle your product before it is sold 'abroad"?

Respondents Average Median High

Crops 10 1.20 2

Livestock 8 1.50 .3

Food Processing 7 1.21 2.5

Finance/Marketing 6 1.00

Overall 22 1..34 .3

60. In your transactions with Mexico, what percentage are made in US dollars?

100% Other

Crops 1.3 .30%, 90%

Livestock 15 .30%, 90%

Food Processing 4 90%(2)

Finance/ Marketing 2 99%, 97%, 95%

Overall 33 .30%, 90%(.3), 95%, 97%, 99%

Who takes the risk of a price change?

Arizona side Sonoran side Joint Broker Respondents

Crops 0 . .3.3 0.42 0.17 0.08 12

Livestock 0.25 0.6.3 0.00 0.1.3 8

Food Processing 0.29 0.29 0.4.3 0.00 7

Finance/ Marketing 0.25 0,50 0,25 0.00 8

Overall 0.27 0.54 0.12 0.08 26

Arizona-Sonora Agribusiness Stud1:3: Questionnaire Results IIJ.i Who takes any exchange rate risk?

/\TIZOna side Sonoran side Joint Broker Respondents

Crops 0.27 0.55 0.09 0.09 11

Livestock 0.22 0.67 0.00 0.11 9

Food Processing 0.29 0.4.3 0.29 0.00 7


Overall 0.18 0.68 0.07 0.07 28

Who takes the risk of a load that doesn't clear border inspection?


Crops 0.27 0.55 0.00 0.18 11

Livestock 0.64 0.18 0.09 0.09 11

Food Processing 0 . .33 0.50 0.17 0.00 6

Finance/ Marketing 0 . .33 0.67 0.00 0.00 9

Overall 0.41 0.41 0.07 0.10 29

Who provides the cooling facilities (if necessary) in Mexico?


Crops 0.25 0,75 0.00 0.00 4

Livestock 1.00 0.00 0.00 0.00 1

Food Processing 0 . .33 0.67 0.00 0.00 3


Overall 0.25 0.75 0.00 0.00 8

61 . If your transactions with Mexico are made in pesos, how are your pesos purchased? • Exchange • Euromex (Banamexo currency exchange house, Houston) • Bank (2) • Money exchange/ broker • Bank in Nogales, Sonora by broker • Mexibank or Comercial Caso de Cambio • In US at border

62. Does your organization trade or do business with countries other than Mexico?

Yes No Respondents

Crops 0.89 0.11 18


Food Processing 0.90 0.10 IO

Finance/ Marketing 0.80 0.20 IO

Overall 0.65 0.35 43

If yes, what countries:

til Arizona-Sonora Agribusiness Study: Questionnaire Results

• Italy • Japan, England • Argentina • Japan,Canada • S. America, Greece, S. Africa, Canada • · 'Europe, Japan, Hong Kong, S. Korea, Canada, Israel • Egypt, Argentina • Australia, New Zealand, Korea • Europe, Asia, China, Japan, S.A. • Canada • W. Europe, Orient • 65 countries • Australia, France • England, Japan

Livestock

• Argentina • Pacific rim • Philippines, Australia, Central and South America • S. Africa, S. America • Pacific Rim, S. America

Food Processing

• Japan,Canada • Europe, Japan, Hong Kong, S. Korea, Canada, Israel • W. Europe, Orient • Brazil, Hong Kong • Canada, Japan • Thailand, China • Switzerland • Italy, Spain

Finance/Marketing

• Japan,Canada • Italy • Japan, England • England, Japan • Guatemala • About 50 • Canada •


63. Has your business ever investigated doing trade or business with countries other than Mexico?

Yes

Crops 1.00

Livestock 0.25

Food Processing 0.80

Finance/ Marketing 0.44

Overall 0.5.3

If yes, what countries: ~

Australia, Europe Chile, Argentina Many canada, Japan

Livestock

Europe S. Africa, S. America Brazil

Food Processing

Europe

Finance/Marketing

Australia, Europe Chile, Argentina

No Respondents

o.uu 10

0.75 12

0.20 5

0.56 9

0.47 ~

64. How do you contrast trade or service transactions with Mexico (USA) compared to other foreign countries?

a. Finding adequate transportation/shipping services.

Mexico (USA) No Dltterence Mexico (USA) Respondents less Difficult more Difficult

Crops 0.07 0.13 0.53 0.20 0.07 15

Livestock 0.00 0.00 0.80 0.00 0.20 5

Food Processing 0.22 0.22 0.22 0.00 0.33 9



Arlzona Overall 0.10 0.10 0.45 0.21 0.14 29

lit•


b. Labeling requirements

Mexico (USA) no Dlrrerence Mexico (USA) Respondents less Difficult more Difficult

Crops 0.07 0.14 0.50 0.14 0.14 14

Livestock 0.00 0.00 1.00 0.00 0.00 3

Food Processing 0.22 0.22 0.22 0.00 0.33 9

Food_ yrocesslng Sonora 0.31 0.23 0.46 0.00 0.00 13


Arizona Overall 0.16 0.08 0.48 0.16 0.12 25

c. Receiving/securing timely payments for goods shipped.

Mexico (USA) No Mexico (USA) more Respondents less Difficult Difference Difficult

Crops 0.07 o.w 0.47 0.20 0,27 15

Livestock 0.00 0.20 0.80 0.00 0.00 5

Food Processing 0.22 0.11 0.11 0.11 0.44 9



Arizona Overall 0.11 0.07 0.39 0.18 0.25 28

Arizona-Sonora Agribusiness Studg: Questionnaire Results '''' d. Government forms and overall paperwork.

Mexico (USA) No Dmerence Mexico (USA) Respondents less Difficult more Difficult

Crops 0.07 0.w 0.47 0.3.3 0.13 15

Livestock 0.00 0.17 0.50 0.17 0.17 6

Food Processing 0.11 0.00 0 . .3.3 0.3.3 0.22 9

Food_ frocesslng Sonora 0 . .36 0.29 0.29 0.07 0.00 14

Finance/Marketing 0.00 0.00 0.1.3 0.75 0.1.3 8

Arizona Overall 0.07 0.0.3 0.45 0 . .31 0.14 29

e. Securing language and translation services.

Mexico (USA) No Dmerence Mexico (USA) Respondents less Difficult more Difficult

Crops 0,07 0.00 0.7.3 0.20 0.00 15

Livestock 0.00 0.00 0.75 0.00 0.25 4

Food Processing 0.11 0.00 0.44 0.22 0.22 9

Food Processing Sonora 0.29 0 . .36 0.29 0.07 0.00 14


Arizona Overall 0.07 0.00 0.59 0.22 0.11 Z7

f. Managing exchange rate uncertainty.

Mexico (USA) No Difference Mexico (USA) Respondents less Difficult more Difficult

Crops 0.00 0.00 0.80 0.1.3 0.07 15

Livestock 0.00 0.00 0.60 0.20 0.20 5

Food Processing 0.22 0.00 0.44 0.11 0.22 9

Food Processing Sonora 0.15 0 . .38 0.46 0.00 0.00 1.3

Finance/Marketing 0.00 0.00 0.50 0 . .38 0.1.3 8

Arizona Overall 0,07 0.00 0.64 0.14 0.14 28

g. Assistance from foreign governments.

Mexico (USA) No Difference Mexico (USA) Respondents less Difficult more Difficult

Crops u.w 0,07 0.50 0,29 0.14 14

Livestock 0.00 0.00 0.60 0.40 0.00 5

Food Processing 0.1.3 0.1.3 0 . .38 0.00 0 . .38 8


Finance/Marketing 0.00 0.1.3 0 . .38 0 . .38 0.1.3 8

Ariwna Overall 0.04 0.11 0.48 0.26 0.11 Z7

tit•• Arizona-Sonora Agribusiness Study: Questionnaire Results

h. Phytosanitary regulations and inspections.

Mexico (USA) No Difference Mexico (USA) Respondents more Difficult less Difficult

Crops 0.07 0.07 0.47 0.3.3 0.07 15

Livestock 0.00 0.00 0.67 0.00 0.3.3 ,3

Food Processing 0.11 0.11 0.44 0.11 0.22 9

Food .{'rocesslng Sonora 0.20 0.40 0.20 0.20 0.00 15


Arizona Overall 0.08 0.08 0.50 0.23 0.12 26

65. Exporting to Mexico (US) is easier than importing from Mexico (US) into the US (Mexico)?

Yes same No don't know Respondents

Crops 0.07 0.20 0.27 OA7 15

Livestock 0.08 0 . .38 0 . .31 0.23 13

Food Processing 0.22 0.11 0.56 0.11 9

Food Processing Sonora 0.6.3 0 . .31 0.06 0.00 16

Finance/Marketing 0.09 0.27 0.45 0.18 11

Overall 0.08 0.29 0 . .32 0 . .32 .38

For Organizations Not Doing Business With Mexico

66. Has your organization ever investigated doing business in

Sonora Rest oT Mexico


Crops 0.50 0.50 12 0.55 0.45 11

Livestock 0.56 0.44 9 0.4.3 0.57 7

Food Processing 0.71 0.29 7 0.71 0.29 7

Finance/Marketing 0 . .38 0.6.3 8 0.3.3 0.67 9

Overall 0.52 0.48 .31 0.48 0.52 29

67. What are the main reasons why your organization is not doing business in Mexico?

• Have not developed the requisite linkages yet. • Don't trust the Mexican government. • Do not have contracts. • Production quantities. • We are citrus growers and shippers and it doesn't make sense to send citrus to

Mexico when they have their own citrus at much cheaper prices. Also have not investigated because of perceived financial risk of doing business in Mexico.

• Markets not developed, not enough individual purchase power for our citrus.


Livestock

• All talk, no action. • For me, the language barrier and some apprehension about how secure I would

be in Mexico as well as my livestock. • Loss of control - Mexicans like to drag out transactions - slower is better

when time is money to them. • -back of contacts for our product/breed.

Food processing

• Difficult to determine how to make contact, get ball rolling. • No success in convincing brokers or distributors. • Our company is small with limited funds for R and D &: growth but growing

fast. • We are just now in a position to export. • Lack of knowledge.

Finance/Marketing

• Regional trade and transportation. • Not enough information, don't know how. • Lack of interest, issues with regard to loan documentation and enforcement. • Land ownership and licensing. • Unstable peso.

68. How long has your company been in business in Arizona?

Crops - average 31.3 years (1-80) Livestock - average 37.8 years (1-109) Food Processing - average 16.4 (4-53) Finance/Marketing - average 35.9 (.3-100) Overall - average 31.2

69. Does your organization belong to any commodity associations, trade groups, or other similar organizations?

No Yes Respondents

Crops 0.12 U,tstj 33

Livestock 0.1.3 0.87 .31

Food Processing 0 . .32 0.68 19

Finance/ Marketing 0.27 0.7.3 22

Overall 0.2.3 0.77 a;

110


70. What kind of information do these organizations provide you for conducting business in Mexico?

Very Useful Useful Somewhat Poor No Respondents Information Information Useful Information Information

Information Crops 0.10 0.17 0.23 0.20 0.30 30

Livestock 0,15 0.27 0.19 0.15 0.23 ~

Food Processing 0.08 0.08 0.23 0.08 0.54 13

Finance/ 0.12 0.12 0,35 0.12 0.29 17 Marketing Overall 0.13 0.19 0.24 0.12 0.31 o/

72. Approximately how many employees (full time equivalents for year), including custom and seasonal laborers are required for your operation on an annual basis?

Less than 10 11-50 50-200 Greater than 200 Respondents

Crops 0.21 0.41 0.24 0.15 34

Livestock 0.58 0.29 0.10 0.03 31

Food Processing 0.47 0.06 0.18 0.29 17


Overall 0.40 0.32 0.17 0.11 81

74. How many employees does your organization employ compared to 5 years ago?

Less Same More Respondents

Crops 0.24 0.35 0.41 34

Livestock 0.32 0,26 0.42 31



Overall 0.25 0.30 0.45 84

75. How do you classify the size of your operation relative to others that sell similar products or services?

Below Average Average Above Average Respondents

Crops 0.15 0,48 0.36 :53

Livestock 0.20 0.40 0.40 30



Overall 0.26 0.38 0.37 82


Appendix[)

Arizona Technical Advi$ory Committee


Arizona-Sonora Agribusiness Study: Technical Advisory Committee for Arizona

Appendix D Arizona Technical Advisory Committee

Basilio Aja Arizona Cattlemen's Association

Robbie Barkley Barkley Seed, Inc.

Gina Broyles-Lane Arizona Department of Agriculture

Larissa Burgess AzMex Foods, Inc.

Jim Cathey Produce Kountry

Enrique Franco Celaya State of Sonora

Jim Christenson U of A, College of Agriculture

Connie Cowan Bank One Arizona

Jesse Curlee Supima Association of America

Sandy Eastlake Arizona Cattlemen's Association

Dolly Echeverria Arizona Wool Producers Association

Ken Evans Arizona Farm Bureau

Lee Frankel Fresh Produce Assoc. of the Americas

Barbara Gast Arizona Crop Protection Association

Henry Giclas Western Growers Association

Bruce Heiden H-Four Farms

Norm Hinz Pinal Feeding

Delbert Householder Delbert Householders Corp.

David Iwanski Agribusiness Council of Arizona, Inc.

Merle Jensen U of A, College of Agriculture

Sheldon Jones Arizona Department of Agriculture

Andy Kurtz Arizona Farm Bureau

Chuck Lakin Lakin Cattle Company

Joe Lane Arizona - Office of the Governor

Walter Lane Arizona Hereford Breeders Assoc.

Rick Lavis Arizona Cotton Growers Association

Stephen Martori Martori Brothers Distributors

Lena McCoy Arizona Beef Council

Hank Mollner Arizona Pistachio Company

Dunbar Norton Norton Consulting

Arizona-Sonora Agribusiness Study: Technical Advisory Committee for Arizona

Claire Owens Owen Agricultural Services

Gene Peterson Wells Fargo Bank

Richard Ramos Sun Land Beef Company

F. Ronald Rayner A-Tumbllng-T Ranches

Virginia Reidel Arizona Farm Bureau

Tim Robinson Keith Equipment Company

Russell Schlittenhart Arizona Grain Research & Promotion Council

George Seperich ASU East, School of Agribusiness & Resource Management

Steve Sossaman Sossaman Farms

Alan Stephens Rural Economic and Community Development Services

John Wake Arizona Department of Agriculture

Dick Walden Green Valley Pecans

Rick Willer Arizona Department of Agriculture


Appendix£

Sonora Technical Advisory Committee


Arizona-Sonora Agribusiness Study: Technical Advisory Committee for Sonora

Appendix S Sonora Technical Advisory Committee

Arturo D. Almada Almada AOASS, A.C.

Alejo Bay Rogel Secretariat of Agricultural Development, Government of Sonora

Jose L. Camallch Secretariat of Agricultural Development, Government of Sonora

Marco A. Camou Platt Secretariat of Agricultural Development, Government of Sonora

German Castelo State Committee of Health Plant

Faustino Fernandez Private Agribusiness

Luis Colosio Fernandez Secretariate of Livestock Development, Government of Sonora

Daniel Ibarra Guerra AOASS, A.C.

Adolfo Lostanou State Committee of Health Plant

Arnoldo Molina Secretariat of Livestock Development, Government of Sonora

Francisco Obregon Ortiz Secretariat of Economic Development and Productivity-Southern Region Government of Sonora

Benjamin Raygoza AOANS, A.C.

Gilberto Salazar Serrano AOANS, A.C.

Eduardo Salcedo Secretariate of Livestock Development, Government of Sonora

Luz Vazquez Moreno CIAO, A.C.

Gustavo Zapien CIPES

Arizona-Sonora Agribusiness Study: Technical Advisory Committee for Sonora

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